Financial Advice, Differentiated Consumers, and the Regulation of Equity‐release Transactions

AuthorLouise Overton,Lorna Fox O'Mahony
Publication Date01 September 2014
DOIhttp://doi.org/10.1111/j.1467-6478.2014.00677.x
Date01 September 2014
JOURNAL OF LAW AND SOCIETY
VOLUME 41, NUMBER 3, SEPTEMBER 2014
ISSN: 0263-323X, pp. 446±69
Financial Advice, Differentiated Consumers, and the
Regulation of Equity-release Transactions
Lorna Fox O'Mahony* and Louise Overton*
In an asset-based welfare context, which encourages the drawdown of
housing equity to meet financial needs in later life, it is anticipated that
the use of equity-release products will become increasingly prevalent.
In the last decade, and reflecting the strategic significance and high
risk associated with this section of the home finance market, targeted
equity-release products (lifetime mortgages and home reversion plans)
have come under the regulatory remit of the Financial Conduct
Authority (FCA). The FCA's approach to equity release is geared
around professional financial and legal advice. Drawing on findings
from a new qualitative study, purposively sampled according to socio-
economic circumstances at the time of the transaction, this article
explores the role of financial advice within the factors that shape
equity-release decision making, and considers the implications of the
FCA's regulatory commitment to the `advice paradigm' in meeting (or
not) the needs of a differentiated consumer population.
INTRODUCTION
Equity release products are a distinct category of home finance product
offered exclusively to older consumers. Marketed as facilitative products
which enable older owners to tap into housing equity without having to sell
up and move out or make repayments by instalment, they enable home-
owners to trade on their housing asset to release capital or income while
continuing to occupy the property as their home. These products are
designed to be attractive to older owners because they provide a mechanism
446
*Essex Law School, University of Essex, Wivenhoe Park, Colchester CO4
3SQ, England
lfox@essex.ac.uk loverton@essex.ac.uk
Research for this article was funded by the Leverhulme Trust, as part of a Research
Programme Grant, `Mind the (Housing) Wealth Gap: Intergenerational Justice and
Family Welfare', RP2011-IJ-024.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
for retaining the use of the home while also unlocking its value to release
capital in lump sum or income. The United Kingdom market has primarily
offered two product types, lifetime mortgages and home reversion plans,
both of which generally operate a minimum age threshold.
1
`Lifetime
mortgages' encompass a range of products in which the debt, interest
payments, and charges are accumulated over the lifetime of the product, and
scheduled for repayment not by instalments but using the proceeds from the
sale of the property when the borrower dies, moves into residential care or
for any other reason vacates the property; `home reversions' involve a sale of
all or part of the ownership of the property subject to an agreement that the
occupier can continue to live in the property until a `qualifying termination
event', namely, (i) the occupier becomes a resident of a care home; (ii) the
occupier dies; or (iii) the end of a period specified in the agreement of at
least twenty years.
These products have increasingly come under the spotlight as govern-
ments look to equity release as one of the mechanisms to enable asset-based
welfare.
2
As such, while equity release remains a specialized sector
comprising just over half a per cent
3
of the total mortgage market, 2013
saw the highest level of growth in five years.
4
Its strategic importance was
underlined in the House of Lords' Select Committee report, Ready for
Ageing?, which noted the significance of `an effective equity release market
to unlock the housing assets held by older people'.
5
The current underuse of
products has been linked to `quite considerable' market failures, with
`knock-on effects for both the market in suitable housing for older people,
and older people's ability to adapt their homes for older age.'
6
Recognizing
447
1
The minimum age threshold varies, but the consumer must usually be at least 55 years old
to qualify for a lifetime mortgage and at least 60 years old for a home reversion plan. See
Equity Release Council, `What is Equity Release?', at
what-is-equity-release/>; also .
2 J. Toussaint and M. Elsinga, `Exploring ``housing asset-based welfare'': Can the UK
be held up as an example for Europe?' (2009) 24 Housing Studies 669±92, describing
the relative lack of engagement of British households in housing asset-based welfare;
J. Doling and R. Ronald, `Property-based welfare and European homeowners: how
would housing perform as a pension?' (2010) 25 J. of Housing and the Built
Environment 227.
3 Equity release advances were valued at £1,074m in 2013 (data provided by the Equity
Release Council), against total gross mortgage lending of £177bn for 2013 (Council
for Mortgage Lenders).
4 The market by value grew by 36 per cent between 2011 and 2013: data provided by
the Equity Release Council in personal communication.
5 HL Select Committee on Public Service and Demographic Change, First Report,
Ready for Ageing? HL (2012±2013) 140, para. 41. `Equity release could enable more
people to use their assets to help pay for the cost of their social care (see Annex 11),
to adapt their homes (see Annex 16), and to support their incomes' (para. 138).
6 id., para. 140. Research has indicated that barriers to older owners' willingness to
spend their housing wealth include concerns about the complexity, riskiness, and
value for money of such schemes, with the perception that they are `very risky' being
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
the `urgent need for greater consumer confidence in the equity release
industry', the Committee proposed that `the Government should work with
the financial services industry to encourage the growth of a safe and easy-to-
understand equity release market.'
7
Against the backdrop of asset-based welfare, privatized responsibility,
and transactional risk, this article draws on new qualitative research with
equity-release consumers to explore the role of financial services regulation
in supporting transactional decision making for consumers in different socio-
economic contexts. Lifetime mortgages were brought under the FSA/FCA's
regulatory jurisdiction in 2004, and home reversions followed in 2007.
8
The
FCA's approach to regulating these products ± for example, through
information disclosure, `key facts' statements, and specific health warnings ±
can in large degree be understood as `upscaled' versions of the conventional
mortgage regime. Rules govern the processes by which the products are
advertised, explained, and sold to consumers: for example, through the
regulation of pre-application disclosure,
9
disclosure at the offer stage,
10
and
post-sale disclosure.
11
Sections of the Mortgages and Home Finance Con-
duct of Business Sourcebook relating to equity release (MCOB 8 and 9) set
out specific advising and selling standards for equity-release transactions,
product disclosure requirements, and good practice guidelines, including
standardized content, order, and form for illustrations, start of contract, and
after-sales information. These are largely adapted from MCOB 5 for stan-
dard mortgages, to reflect the different features of the products.
12
The
financial promotion rules,
13
which regulate the form and content of promo-
tional literature, for example, by requiring firms to take reasonable steps to
ensure that promotions are fair, clear, and not misleading,
14
and guidance
advising firms to give equal prominence to disadvantages and advantages of
product features,
15
were largely carried across from conventional mort-
gages,
16
although additional features included making consumers aware of
the alternatives for generating capital and income from their home and,
448
the strongest factor against equity release: K. Rowlingson and S. McKay, `Attitudes
to ho usi ng as set s and i nhe rit anc e' (2 005 ) CML H ous ing F ina nce a t
, Chart 3.
7 HL Select Committiee, id., para. 143.
8 See L. Fox O'Mahony, Home Equity and Ageing Owners: Between Risk and
Regulation (2012) ch. 8.
9 FSA Handbook, Mortgages and Home Finance: Conduct of Business Sourcebook,
MCOB 5, at .
10 id., MCOB 6.
11 id., MCOB 7.
12 id., MCOB 5, MCOB 8, MCOB 9.
13 Regulating advertising and product literature: see id (MCOB 3).
14 id., MCOB 3.6.3.1.
15 id., MCOB 3.6.4.1(b).
16 For example, the requirement to provide an illustration that is clear, fair, and not
misleading, accurate and explained to the consumer; id., MCOB 5.4.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
initially, strongly encouraging consumers to seek advice if they are at all
unsure.
17
The emphasis on personalized financial and legal
18
advice, to enable self-
responsible consumers to make appropriate financial decisions, is perhaps
the most distinctive feature of the equity-release regime. A strong steer
towards professional financial advice was central to the `risk statement' for
lifetime mortgages,
19
and following the Mortgage Market Review (MMR) ±
which designated equity-release consumers as `vulnerable',
20
and concluded
from this that they will `benefit from advice more than others'
21
± financial
advice is now mandatory unless the consumer is exempt.
22
Indeed, the MMR
identified a range of `vulnerable' populations across the mortgage market for
whom sales must be advised: consumers of higher-risk products (including
equity release, sale and rent back, and right-to-buy customers),
23
and higher-
risk consumers (the highest-risk consumer is designated as one who is
borrowing to consolidate existing debt).
24
The MMR also identified a
category of `not vulnerable' consumers: high net worth (HNW) individuals
and mortgage professionals who have been exempted from the regulatory
requirements. Aside from this group, and although the equity-release
population is notably differentiated, the application of regulatory measures
to consumers of this high-risk product is not further differentiated according
to the consumer's circumstances, with financial advice deployed as a `one-
size-fits-all' protection for what we refer to in our study as `marginal' and
`non-marginal' consumers.
A regulatory strategy geared around information and advice is particularly
significant when understood in the context of asset-based welfare:
25
as the
United Kingdom, like other advanced economies, has shifted from collective
449
17 FSA, The FSA's approach to regu lating mortgage sales (2002) , at
www.fsa.gov.uk/pubs/cp/cp146.pdf>, para. 18.11.
18 The FCA also requires that all home reversion consumers must receive legal advice,
and the vast majority of lifetime mortgage consumers will also receive legal advice,
as required by industry regulator ERC; we explore the effectiveness of legal advice in
a separate article.
19 In contrast to the conventional mortgage regime, the required statement for lifetime
mortgages did not identify the main risks of the product, but directed consumers
towards obtaining individual advice, with the health warning that `This is a lifetime
mortgage. To understand the features and risks, ask for a personalised illustration.';
FSA Handbook, op. cit., n. 9, MCOB 3.6.13.
20 FSA, Mortgage Market Review: Proposed Package of Reforms, CP11/31 (2011) para.
5.77, at .
21 id., para. 5.78, emphasis added.
22 Mortgage Market Review (Conduct of Business) Instrument 2012; `high net worth'
(HNW) individuals and mortgage professionals are exempt from the requirement to
receive financial advice.
23 FSA, op. cit., n. 20, para. 5.77.
24 id., para. 5.86.
25 J. Flint, `Housing and ethopolitics: constructing identities of active consumption and
responsible community' (2003) 32 Economy and Society 611.
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welfare provision towards privatized individual responsibility, the growth of
equity withdrawal (through flexible mortgage products, across the life-
course),
26
and equity release (using targeted products in later life) requires
consumers to make decisions about investment, accumulation, and `de-
cumulation' that expose them to new types of risk. As the role of the welfare
state shifts from direct provider of welfare resources and services to one of
enabler, citizens are required to become more financially capable in order to
perform as active, economically-rational citizens.
27
Yet, research has
demonstrated that the financial means and capability to manage this risk
effectively are not evenly distributed, so that those with fewest resources are
most likely to suffer when risks are individualized rather than pooled.
28
This
exacerbates the general disjuncture between the rational actor model and the
reality of financial decision making,
29
while the `compound' vulnerabilities
of being an equity-release consumer (high-risk product) who is less well off
or struggling financially (high-risk consumer),
30
is underscored by the
unequal distribution of financial capability
31
and social and cultural capital.
This raises important questions about the appropriateness of information
and advice as the regulatory tool for this sector of the financial services
market. Disclosure regulation has long been criticized as based on an `. . .
unrealistic, rational actor model of borrower behaviour';
32
a `protection for
the middle classes',
33
with Wilhelmsson describing `measures based on the
information paradigm [as liable to] reproduce and even strengthen existing
social injustice'.
34
The information paradigm has been discredited as a
model for adequate consumer protection on the grounds that it is both
unrealistic (inasmuch as it requires consumers, armed with information, to
protect themselves) and likely to be of least benefit for those who need it
most, both because they are least well-placed to manage their own risks
based on information, and because they are likely to have little choice due to
450
26 S. Parkinson et al., `Mortgage Equity Withdrawal in Australia and Britain: towards a
wealth-fare state?' (2009) 9 European J. of Housing Policy 363.
27 A. Atkinson et al., Levels of Financial Capability in the UK: Results of a Baseline
Survey, FSA Consumer Research Paper No. 47 (2006).
28 S. Vickerstaff, `Life Course, Youth and Old Age' in Risk in Social Science, eds. P.
Taylor-Gooby and J. Zinn (2006) 180.
29 See, for example, K. Strauss, `Re-engaging with rationality: the context of UK
pension decision-making' (2008) 8 J. of Economic Geography 137.
30 A. Walker and L. Foster, `Caught between virtue and ideological necessity. A century
of pension policies in the UK' (2006) 18 J. of Political Economy 427, at 445.
31 Atkinson et al., op. cit., n. 27.
32 L. Willis, `Decision making and the limits of disclosure: The problem of predatory
lending: Price' (2006) 65 Maryland Law Rev. 707, at 741.
33 G. Day, `Assessing the effects of information disclosure requirements' (1976) 40 J. of
Marketing 42, at 49; G. Ho wells, `The Potential and L imits of Consumer
Empowerment by Information' (2005) 32 J. of Law and Society 349, at 357.
34 T. Wilhelmsson, `Consumer law and social justice' in Consumer Law in the Global
Economy, ed. I. Ramsey (1997) 224.
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pressing financial pressure necessitating the transaction, and to the limited
options available to them to access money.
35
Differentiation across the consumer population is a prominent theme in
36
which defines the Financial Conduct
Authority's `consumer protection objective' as `securing an appropriate
degree of protection for consumers'. In meeting this objective, the FCA must
have regard to a range of differentiating factors across the spectrum of retail
financial services, from differing levels of product risk
37
to variations in
`consumer risk' based on experience, expertise,
38
and expectations
39
of
different products, as well as different needs for information and advice.
40
Provider responsibility is expressed in the form of achieving an appropriate,
contextualized level of care,
41
while consumer self-responsibility remains a
general principle.
42
Alongside the `consumer protection objective', the
competition objective refers to `the needs of different consumers who use or
may use those services, including their need for information that enables
them to make informed choices.'
43
Indeed the FCA's overarching strategic
objective of `ensuring that relevant markets function well',
44
and the three
operational objectives that sit under it, were together posited as seeking to:
promote good outcomes for consumers, through a differentiated and propor-
tionate approach which takes into consideration the knowledge and financial
sophistication of the various types of consumer . . .
45
The FCA promised a:
. .. commit[ment] to a better understanding of consumer behaviour, consumer
needs and consumer experiences . .. and to building the consumer perspective
into all its work . . . work[ing] with the grain of consumers' behaviour.
46
The MMR's emphasis on financial advice as the vehicle through which to
protect equity-release consumers ± and, particularly, the narrative that sug-
gests that vulnerable consumers are likely to benefit most from advice ± raises
significant questions for the FCA's response to vulnerability across the
mortgage market. Previous research has indicated that while financial advice
451
35 `Information is only useful if it can be acted upon. The poor may rationally decide not
to make use of information, if they feel no alternatives will be available to them':
Howells, op. cit., n. 33, p. 357.
36 Financial Services Act 2012, s. 6(1)(1C).
37 id., s. 6(1)(1C)(2)(a).
38 id., s. 6(1)(1C)(2)(b).
39 id., s. 6(1)(1C)(2)(f).
40 id., s. 6(1)(1C)(2)(c).
41 id., s. 6(1)(1C)(2)(e).
42 id., s. 6(1)(1C)(2)(d).
43 id., s. 6(1)(1E)(2)(a).
44 id., s. 6(1)(1B)(2).
45 FSA, The Financial Conduct Authority: Approach to Regulation (2011) para. 1.11.
46 id., paras. 4.10, 4.12.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
can, on the one side, be instrumental in overcoming consumers' informational
deficiencies, it can also be leveraged to exploit those deficiencies.
47
Financial
advice is susceptible to the risks of conflicts and bias, and (vulnerable)
consumers are not necessarily well placed to distinguish good advice from
bad.
48
The aim of professional financial advice is to enable consumers to
negotiate the opportunities available to them by directing individuals towards
the best alternative to meet their needs, objectives, and circumstances. Yet,
research into investment advice has revealed no clear evidence that advice
increases net economic welfare,
49
particularly in light of the complex
relationships between appropriate product quality (provider's responsibility)
and appropriate product choice ± including the choice of whether or not to
participate in the market (consumers' responsibilities with benefit of advice).
This creates a bilateral moral hazard whereby it is difficult to identify where
the process of matching a consumer to a suitable product has failed (or if the
process has failed).
50
Furthermore, it has been argued that where law focuses
on imposing a higher requirement for financial advice, this supports a
tendency on the part of providers to `free-ride' on the advisor's efforts and
decreases their incentives to create better products,
51
with potentially adverse
implications for the achievement of a `safe and easy-to-understand equity
release market'.
52
For a vulnerable mortgage consumer who, following the
Mortgage Market Review, is likely to receive both legal and financial advice,
the potential attribution of responsibility for adverse outcomes across four
domains ± did the adverse outcome result from (i) poor financial advice, (ii)
poor legal advice, (iii) a poor product, or (iv) was it the consumer's fault? ± is
particularly challenging.
This article draws on a qualitative study of 70 equity-release consumers to
explore the role of financial advice relative to other factors, such as decision-
making support from friends and family, the consumer's own independent
judgement, and financial constraints and/or contexts. While financial advice
as a regulatory strategy for vulnerable consumers has emerged more recently
in the `conventional' mortgage context, it has been a central element of the
equity-release regimes since their inception. Research exploring the value of
this mandatory, paid-for-by-the-consumer
53
advice in supporting decision-
452
47
R. Inderst and M. Ottavani, `Financial Advice' (2012) 50 J. of Economic Literature 494.
48 id., p. 511.
49 U. Bhattacharya et al., `Is Unbiased Financial Advice to Retail Investors Sufficient?
Answers from a Large Field Study' (2012) 25 Rev. of Financial Studies 975.
50 S. Levmore, `Commissions and conflicts in agency arrangements: Lawyers, real
estate brokers, underwriters, and other agents' rewards' (1993) 36 J. of Law and
Economics 503; B.I. Carlin and S. Gervais, `Legal Protection in Retail Financial
Markets' (2012) 1 Rev. of Corporate Finance Studies 68.
51 Carlin and Gervais, id., pp. 69±70.
52 See n. 7 above and associated text.
53 Estimates place the cost at around £749 per equity-release transaction: R. Terry and
R. Gibson, Assessment of Equity Release Pilot Schemes (2012) 40.
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making for consumers in socio-economically differentiated circumstances
offers potential insights into the appropriateness of the FCA's regulatory
approach to this small but (increasingly) strategically important market for
asset `de-cumulation', as well as offering a case-study for wider questions
about how regulatory strategies geared around financial advice might
differentially protect consumers across differentiated populations.
METHODOLOGY
Our analysis draws on a qualitative study, carried out in 2013, that explored
the needs, circumstances, and decision-making processes of equity-release
consumers using semi-structured, in-depth, interviews. One of the central
themes that the study sought to explore was the role of financial advice in the
decision-making process, specifically its role in enabling consumers to make
decisions that were appropriate to their needs, circumstances, and objectives.
As such, we explored consumers' contextualized experiences of taking out
equity-release plans and their reflections on the sig nificance of the
information and advice that they received. It is important to emphasize
that the research did not seek to evaluate the quality of the advice provided
by independent and equity-release tied financial advisers: our aim was not to
test whether advisers had complied with regulatory requirements but, rather,
focused on the role of advice in contributing to good financial decision
making across a socio-economically differentiated consumer population.
The recruitment of participants to the study was facilitated by earlier
equity-release research carried out by Overton in 2009/10. The 2009/10
study combined a quantitative self-completion postal survey with follow-up
semi-structured interviews. At the time of the original survey, participants
were asked if they were willing to take part in future equity-release research.
This provided the opportunity to contact 251 older people at the beginning of
2013. Given the relatively high levels of income and wealth inequality
among older owners in the United Kingdom (and, indeed, among equity-
release consumers), we were keen to recruit participants from economically
diverse backgrounds, allowing comparisons to be made between better-off
and poorer consumers. In total, 70 interviews were carried out, and Table 1
sets out the profile of the sample in terms of key characteristics.
Using participants' self-reported financial situation before taking out their
equity-release plans (captured in the 2009 survey), the sample was divided
into marginal and non-marginal categories. Those placed in the marginal
category had stated that before taking out their equity release plan they were
`finding it very difficult to get by', `finding it quite difficult' or `just about
getting by'; those deemed to be non-marginal consumers reported that they
were either `doing all right' or `living comfortably'. There are, of course,
limitations to this form of categorization: self-reported financial situation is
subjective, meaning that just about getting by to one person may be seen as
453
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
doing all right to another. However, since we were interested to explore the
possible effects of releasing equity under pressure, how this may affect
whether or not people shop around, how long they spend planning the
decision, their evaluation of alternatives to, and within, equity-release
products, and the extent to which they considered, or were able to take
account of, the risks associated with equity release, the way that consumers
felt about their financial situation before releasing equity was arguably more
important than an objective measure of their financial circumstances.
In 2013, the majority of participants had held their equity-release plans
for a minimum of five years, but in the main, eight years or more. On the one
hand, this was advantageous in enabling us to capture the long-term
experiences of consumers. Medium-term responses to, and consequences of,
454
Table 1. Sample sub-groups
Number
Plan type
Mortgage 42
Reversion 28
Consumer type
Marginal 34
Non-marginal 36
Household type
Couples 30
Single female 22
Single male 18
Age
66±70 5
71±75 16
76±80 20
81±85 24
85+ 5
Children
Yes 47
No 23
House value on entering into equity release
Under £100,000 6
£100,000±£149,999 10
£150,000±£199,999 21
£200,000±£299,999 21
£300,000 or more 12
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equity-release transactions are important for a number of reasons. Equity-
release products are a form of `credence good': since their suitability and
pricing depends on unknowable future events (future house value, longevity
of the owner, future health and mobility needs, future financial needs), the
utility impact of the product is difficult to ascertain before consumption.
Consumers may feel very differently about the level of debt that is owed
some eight to ten years later, and they may have become more aware of
features of the product which enhance or detract from its suitability for their
needs, objectives, and circumstances.
One potential downside to interviewing participants about their experi-
ences of taking out equity release several years previously was that they may
have had difficulty with recall. Indeed, some interviewees could not
remember the finer details of decision making at the time of the transaction,
for example, whether the adviser offered them both types of products or what
the range of the offer was. In some cases, participants consulted their
documentary records in advance of, or during, interviews, to refresh their
memories on transactional details. However, all participants were able to
reflect on the role that the adviser had played in helping them to make the
decision, relative to other factors such as support from family and friends,
their own independent judgement, or financial constraints at the time, as well
as whether they were happy with the decision in hindsight. As such, we did
not encounter any issues with recall that compromised our ability to meet the
objectives of the study.
As the interviewees were geographically dispersed, from Scotland to the
south coast of England, the majority of interviews were conducted over the
telephone rather than face-to-face. On a small number of occasions this
method was not suitable, largely due to hearing impairments, so face-to-face
interviews were carried out in these cases. According to some evidence,
telephone interviews serve less well for asking questions about sensitive
issues such as income,
54
but we did not experience any such difficulties.
Indeed, the majority of interviewees were happy to discuss income levels,
financial circumstances, and other sensitive topics; it may be that the
distanc e afforded by t elephone int erviewing h elped in this r egard,
encouraging participants to be more open.
All interviews were recorded, with the prior permission of participants,
and transcribed. We applied the framework analysis method
55
to interrogate
patterns within the data along key themes, including `decision making'.
Within this theme, we constructed an overarching thematic chart, enabling us
455
54 R.W. Shuy, `In-person versus telephone interviewing' in Handbook of Interview
Research: Context and Method, eds. J.F. Gubrium and J.F Holstein (2002) 537.
55 J. Ritchie and L. Spencer, `Qualitative data analysis for applied policy research' in
Analyzing Qualitative Data, eds. A. Bryman and R.G. Burgess (1994) 173; L.
Spencer et al., `Carrying out Qualitative Analysis' in Qualitative Research Practice,
eds. J. Ritchie and J. Lewis (2003) 219.
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to unpack the nature and content of this broad theme before developing
smaller charts containing refined sub-themes (for example, what prompted
decisions, whether decisions were planned or unplanned, the nature and
effectiveness of the consumer's own planning process, consumers' reported
level of confidence and experience in dealing with financial matters, and the
nature and effect of professional (legal and financial) advice). Each row in
the matrix represents an interviewee (clustered according to financial
circumstances and product type as `marginal lifetime mortgage', `non-
marginal lifetime mortgage', `marginal reversion', `non-marginal reversion')
while each column contains data from their transcript relating to that
particular theme/sub-theme. Organizing the data in this way enabled us to
explore the range of responses and the differences and similarities across
cases, not only at the individual case level but also within and across the
categories of marginal and non-marginal consumer.
FINDINGS
1. Was financial advice useful?
The vast majority of non-marginal participants felt that they had effectively
negotiated the equity release market, and remained satisfied with the
decisions they had made several years later. Typical comments included:
I knew what I was going to do and they offered me a very good deal on it, a
very good arrangement, just precisely what I wanted. It has worked extremely
well.
(Henry, age 81, non-marginal consumer)
For us, we feel that the plan is right. We still feel that it's right.
(Thomas, age 71, non-marginal consumer)
Within this broadly satisfied group, non-marginal participants tended to fall
into two main sub-groups: those who negotiated the information effectively
themselves, and who viewed professional financial advice as unnecessary,
and those who relied on financial advice, which they found helpful in
making the decision. The former group tended to be research-focused
decision makers, highly confident in their own abilities to plan, carry out
research, negotiate and process information independently, and make sound
decisions (financial or otherwise). The following quotes sum up this general
approach:
I don't do a thing unless I do quite a bit of research beforehand. I'm a belt-and-
braces chap, and so before I do anything I still seek professional advice, even
if it meant that I have to pay for it . . . I hadn't told him [adviser] which
companies I had researched, but he came back and said to us that company x
looks about the best company for your needs. So we'd come to the same
conclusion anyway.
(Thomas, age 71, non-marginal consumer)
456
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If I'm actually going to do something then I'll research the heck out of it. So
I'm fairly confident that even though [researching] it will take a long time, I
can dig into things and get it sorted out.
(Mike, age 67, non-marginal consumer)
Sometimes this confidence was linked to previous life experiences:
With my job I had, and everything and my experience I have great confidence
in my own ability to know which is good and which is bad, well I think I have
anyhow.
(Charles, age 80, non-marginal consumer)
For the most confident decision make rs, the requirement to take
independent financial advice was a source of frustration:
Having decided who we wanted to go with we then discovered, to my
annoyance, that we couldn't go straight to the mortgage provider and we had
to use a financial advisor. We could pretty much tell him the answers to all the
questions he had to ask because we'd been going through it for so long . .. I'd
done all the work and I didn't need an advisor. If I had wandered in with my
mouth open to an advisor asking them to tell me what to do and paying all that
commission . . . then I wouldn't have minded but I'd done all the work
anyway.
(Mike, age 67, non-marginal consumer)
The fact that some consumers are capable of negotiating information and
making informed choices independently of professional financial advice was
recognized to some extent in the mortgage market review, which ± across the
spectrum of mortgage products ± exempted consumers who are of high net
worth
56
or professional customers from the advice requirement.
57
Of the
participants in our study, only one might have qualified as `high net worth'
and ± ironically perhaps ± this participant was enthusiastic about the advan-
tages of delegating the decisional process to his financial adviser. Although
he had extensive financial experience and a clear, strongly instrumental, and
economically rational sense of the purpose of his equity-release transaction,
he preferred to delegate the task of selecting the best product to meet his
needs, and described the information and advice he received as:
absolutely first class
(Henry, age 81, non-marginal).
Some of the participants in the study had worked in financial services, and
(prior to advice becoming compulsory in 2012) had opted not to obtain
`professional' advice. Phillip indicated that both he and his daughter were
financial services professionals and stated that:
457
56 Annual minimum net income of £300,000 or minimum net assets of £3,000,000.
57 Who work or have recently worked in the home finance sector for at least one year in
a professional position which required knowledge of the home financial transactions
or services envisaged, and whom the firm reasonably believes to be capable of
understanding the risks involved in the transaction.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
nothing worried me at all. I knew exactly what I was doing .. . I advised
myself, I knew all about it . . .
(Phillip, age 76, non-marginal)
while Norman, who had been an accountant, explained that:
I didn't involve their financial consultants or anything, my own personal
financial adviser, I had a preliminary chat with him before I took out the first
one . . . I'd more or less made up my own mind that it looked all right so I
decided to do it.
(Norman, age 75, non-marginal consumer)
Following the MMR, these participants would not have qualified as `profes-
sional customers', either because they had not `recently' worked in the
industry or because they had not specialized in equity release, and so would
have been required to obtain ± and pay for ± professional advice.
While non-marginal owners typically expressed either personal con-
fidence or confidence through financial advice, the majority of marginal
consumers did not, and, of participants who indicated that they lacked
confidence and experience in dealing with financial matters, all were
`marginal' consumers. These participants were also much less likely to have
carried out their own research before seeing an adviser, and in some
instances, even where they had attempted to seek out and understand some of
the information beforehand, they felt that this had not been successful.
Confusion around the details of the plan and how it worked were also more
apparent among marginal consumers. For example, Shirley said:
I've noticed in the last two years it's as if the interest has stopped going on, so
I'm wondering, and it hasn't been explained fully, whether we were expected
to pay interest till we die on this money or whether there's a limit to how much
interest you pay, because why haven't I had a statement?
(Shirley, age 66, marginal consumer)
Our finding that the extent to which financial advice was useful in helping
our participants to negotiate the equity release market, and to be clear about
the implications of their decisions, varied according to socio-economic
context, tends to undermine the FCA's reliance on the `advice paradigm' for
all non-professional/non-HNW consumers. The following sections discuss
the differentiating factors that influenced transaction decision making for
marginal and non-marginal consumers.
2. What do you know? Who do you know?
Amongst the participants, a salient factor in determining confidence and
financial capability was linked to previous occupation and/or access (through
friends or family) to informal support from people with a reasonable level of
financial literacy. Amongst non-marginal consumers who felt that they
negotiated the process independently of professional advice, a significant
proportion were either financially capable themselves, or had access to
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ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
friends or family working in the financial services industry who helped them
to decipher the information. This helped them to feel prepared to receive
advice, and to ask relevant questions, leading to confident decision making.
Before the advisor came I had a conversation with my sons . .. we discussed it
at quite some length, and when the advisor came I was prepared for the
questions he asked.
(Doris, age 82, non-marginal consumer)
We ran it past my wife's brother, who is involved in the financial industry . ..
(Bob, age 76, non-marginal consumer)
In contrast, marginal consumers typically expressed a lack of confidence in
dealing with financial matters, and this limited their ability to benefit from
advice. While non-marginal participants were often extremely well-prepared
to question the adviser, marginal consumers seemed less well-placed to reap
the benefits of professional advice. For example, Don said:
I don't really know what questions to ask.
(Don, age 74, marginal consumer)
We did not identify any significant differences in financial capability or
confidence linked to age (for example, younger old versus older old) or
gender. Indeed, our participants included several single and widowed women
who did not have significant personal experience or confidence in dealing
with financial matters, but nevertheless seemed clear about how their plans
worked and felt comfortable with the decisions they had made because they
had access to decision-making support in the form of friends or family
members. For example, Ruth was an 80-year-old widow. She was classed as
a marginal consumer and she told us that she was financially inexperienced
because her husband had taken most of the responsibility for dealing with
household finances. However, she had access to help in researching and
understanding the options before she met with an adviser. She said:
I think I would have been really at sea if I'd had to do that [research the
options and digest the information] myself . . . the person that I relied on for
advice mostly was my eldest son.
(Ruth, age 80, marginal consumer)
Our findings showed a correlation between preparedness for advice and
ability to benefit from it, on the one hand, and marginality, financial
capability, and access to support from friends and family (social capital) on
the other. Overall, marginal consumers appeared more reliant than their non-
marginal counterparts on the information and advice given to them by
professional advisers when making their decision. However, the process of
receiving advice was not always experienced by these consumers as clear or
reassuring. This highlights the importance of knowing what questions to ask
in addressing information asymmetry between the consumer and the adviser,
with implications for the role and function of generic advice. Hanifan has
noted that `[g]eneric financial information ahead of taking independent
459
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financial advice can transform the ability of the consumer to interact effec-
tively with their financial adviser',
58
and our findings underline the potential
value for generic `equity-release counselling' to prepare some consumers
(marginal consumers, consumers with less financial literacy or without
access to decision-making support) before they receive specific equity
release advice. While free generic advice is now available to equity-release
consumers,
59
take-up is likely to be variable, such that it may be worth
considering whether financial advisers have a more formal role to play in
`nudging' consumers towards preparatory generic advice.
The United Kingdom's 2011 Mortgage Market Review identified those
who are borrowing to consolidate existing debt as the most vulnerable
category of mortgage and home finance consumer.
60
Among the participants
in our study, thirteen marginal consumers used equity release to pay off their
(own) debt. Those for whom equity release was urgent and unplanned had
not carried out their own research, were not in a strong position to know
what questions to ask, were not empowered in their interaction with the
adviser, and so were not well prepared to benefit from the advice process.
These participants rarely considered the advice that they received to be clear
and helpful. Effective consumer protection is particularly important for this
category of consumers, recognized to be the most vulnerable to, as well as
particularly adversely affec ted by, sub-optimal choices. Our finding s
highlight the particular difficulties they face, as well as signalling to the
danger of relying on advice to deliver adequate consumer protection for this
population, without further safeguards.
3. Someone you can talk to
The FCA place considerable emphasis on the training and competence of
lifetime mortgage advisers, who are required to take appropriate examina-
tions administered by the Financial Services Skills Council (FSSC), to
460
58 T. Hanifan, `Good Financial Advice' in Making the Most of Equity Release:
Perspectives from Key Players, ed. L. German (2012) 73.
59 A central strand of the Government's strategy to support financial capability has been
to provide and promote free generic financial advice through its `Money Advice
Service', at , established in the Financial Services
Act 2010 as the Consumer Financial Education Body (CFEB) with the statutory
function of enhancing the understanding and knowledge of members of the public to
manage their own financial affairs. These functions were extended under the
Financial Services Act 2012 to include assisting members of the public with the
management of debt. The Money Advice Service offers free information and advice
on retirement planning, paying for long-term care, downsizing, and equity release,
including face-to-face sessions and generic advice personalized to the individual's
situation, although it cannot offer specific product recommendations since it is not
regulated by the FCA to provide regulated financial advice.
60 FSA, op. cit., n. 20, para 5.86.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
ensure that they have an adequate level of knowledge and understanding of
both products and processes. The FSSC also offers an optional `Later Life
Adviser Accreditation Scheme' (LLAAS), which is awarded to individual
advise rs in recogn ition of dem onstrati ng best pra ctice, app ropriate
knowledge, and older client care procedures, including the application of
soft skills and understanding of both the financial and advice-processing
needs of different types of consumer.
Our analysis sugge sts that the relationshi p between adviser and
consumer can play a key role in determining how clear and helpful
consumers find advice, and how that advice influences their subsequent
choices. A personable, friendly adviser helped consumers feel comfortable
and at ease with asking questions, and seeking clarification for issues they
were unsure about. Among those who were not very satisfied with the
information/advice that they received, and felt that it wasn't particularly
clear or easy to understand, they often described being uncomfortable with
challenging the experts or indicated that they did not feel that they were
able to ask questions and seek clarification for details they did not
understand. This was in stark contrast to the majority of participants who
felt happy with the advice they were given, and satisfied with the decision
they had made. The following quotes give a sense of the importance of this
kind of relationship:
I must say the one that came to see me was very helpful, very open, and I think
I saw him about three times altogether . .. it certainly sounds complicated from
the literature they issue, but in the end it seemed very straightforward.
(Harold, age 83, non-marginal consumer)
I did it over the phone with a considerable amount of help from the agent that
was with [the company]. She was very, very helpful . . . where I didn't
understand it I said so.
(Frank, age 83, non-marginal consumer)
She was very, very nice and she did explain everything to me.
(Peggy, age 81, marginal consumer)
I was quite impressed . . . They were excellent and also very personable. We
did a lot of discussion by email and also the young chap phoned me a lot. I got
to quite like him and respect him.
(Fred, age 74, non-marginal consumer)
These findings highlight the importance of an environment in which the
consumer can ask questions, preferably over a series of conversations and
having had an opportunity to reflect on the advice. This is particularly salient
for those who do not, or are not able to, effectively engage with the
information before meeting with an adviser. Our findings also support earlier
research into ageing and decision making, which has emphasized `greater
reliance on the affective heuristic, greater effort to maintain positive mood
during the decision making process, greater attention to the emotional
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aspects of the decision making process . . .'
61
to support older people's
decision making. For those who do not benefit in this way, the converse is
also significant: the adverse impact of failure to effectively engage in the
advice process (for example, by knowing what questions to ask) is deepened
for older consumers.
62
The importance of a comfortable, trusting relationship with the adviser
could also be seen in participants' choice of provider. Grace, aged 90, opted
against recommendations made by an independent financial adviser in
favour of a plan provided by her local bank, in part because of a negative
relationship with the adviser. After several visits she felt that she was being
pressured and experienced `information overload':
In the end they were getting me so confused I couldn't think what they were
really talking about. You know and their way of trying to talk you into these
things . .. I mean they could quote all these different prices and how much the
interest would be and all this on such and such a thing. I mean at our age we
just can't take it all in.
(Grace, age 90, marginal consumer)
Rather than basing her decision on (economically rational) financial criteria,
she turned to the bank she knew and trusted:
Well I think it was the, they came to explain it so much better than anybody
and it was all quite straightforward and the gentleman that came you know, he
was very honest you know . . . and I mean I had, I've been with the bank all
my life for my own personal banking and for the family before me so you
know I felt I could trust them.
If financial advice is to be effective ± especially for those consumers most in
need of support for good decision making, and who do not have the
advantage of personal financial capability or friends and family to advise
them ± advisers must consider not only the financial needs, circumstances,
and objectives of consumers, but must also be sensitive to their decisional
needs, including the extent to which they have negotiated the information
beforehand, and whether they feel able to question or query if the options
presented are unclear.
4. Thinking ahead
In recent years, many of the organizations concerned with the safe and
suitable release of equity have indicated that `an important area where good
financial advice can make all the difference . . . is with regard to its
interaction with entitlement to welfare benefits.'
63
The Mortgage Market
462
61
Q. Kennedy and M. Mather, `Aging, Affect, and Decision Making' in Do Emotions Help
or Hurt Decisionmaking? A Hedgefoxian Perspective, eds. K.D Vohs et al. (2007) 259.
62 L. Zamarian et al., `Normal Aging Affects Decisions Under Ambiguity but Not
Decisions Under Risk' (2008) 22 Neuropsychology 645, at 656.
63 Hanifan, op. cit., n. 58.
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Review also identified a central concern with whether consumers releasing
equity `fully appreciate the wider implications of doing so, such as the
impact on their tax position or their eligibility for State benefits.' Our study
therefore sought to explore the significance of tax and benefit advice for
consumers. Our findings suggest that, while it is extremely important for
consumers to appreciate the wider and future implications of releasing
equity, this applies more to their future housing and care needs than to their
position in relation to tax and benefits. The vast majority of participants were
above the threshold and so ineligible for means-tested benefits, sometimes
only marginally but in a large number of cases by quite some distance. For
the small minority in receipt of pension credit, the loss of this benefit did not
weigh heavily against their reasons for releasing equity. Our findings suggest
that the prevailing emphasis on tax and benefits as the focus of `future-
proofing' equity-release decisions is misplaced.
A more important aspect for thinking and planning ahead related to
future housing and care needs. In a number of cases, participants had not
been able to anticipate their future needs at the time of the transaction. The
ability to factor in future care needs is particularly important because the
funding available from a local authority may depend on the vehicle by
which equity is released. The (currently variable) availability of a local
authority deferred payments scheme (where the local authority meets care
home fees by a loan at 0 per cent interest, against a first charge on the
home) should be factored into the advice, with the reminder that it will not
be available where an equity-release company hold a first charge through a
lifetime mortgage,
64
contrasted to a partial home reversion which does not
create a charge.
Those participants who indicated that they did not think to ask about
future implications at the time of the transaction were mostly marginal.
Perhaps because equity release was being used to address pressing financial
difficulties, their future needs were not the main focus at the time they
received advice. This raises questions concerning the role of advisers in
proactively asking questions and exploring how far consumers have thought
about a range of issues concerning their future housing needs and care-
planning, whether or not they may need to move into a different/more
suitable home in the future, whether or not they may need or want to release
further equity, whether their existing house may need adaptation, and
whether it is important to them to leave an inheritance. The pitfalls of
omitting such discussions from financial advice concerning product choice
were revealed by one consumer who had discovered only later that the terms
of her home reversion would not permit her to move to an apartment:
I was well aware that in the deed there was a package that said I could move
within the company, you know, to their sort of recognition and it sort of never
463
64 id., p. 77.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
occurred to me to ask them: did that apply [to apartments] at that time, but
when I did of course the answer back was a little bit of a shock, not a big shock
but a shock yes because I'd got my mind fixed on a little apartment.
(Joan, age 82, marginal consumer)
Another participant revealed that concerns around how she might afford to
pay for several years in care, should she need it, were starting to weigh on
her mind some ten years after taking out a home reversion to help her sons
get out of financial difficulty.
I am now concerned, well, I would be concerned, if I needed care, you know,
I'm 82 now, but, of course, the house is not altogether mine any more . . . I
think, at the time, being younger . .. I thought less about what will happen if I
need care.
(Doris, age 82, non-marginal consumer)
Betty (age 86, marginal consumer) indicated that, while she had no other
way of raising the money she needed to help her pay for everyday living
expenses ± and so was (and remains) glad to have released equity to enable
her to meet her needs at the time ± deteriorating health now means that she
must remain in a house that is not suited to her needs.
Our study also revealed that factoring in their future needs at the time of
the transaction may not be sufficient, where providers retain the right to
`shift the goalposts' on their options for moving the plan. Jack explained:
We have had no problems [with the plan] until we thought about moving into a
retirement flat, especially for the elderly. [The provider of their plan] has
changed the goalposts slightly, putting sheltered homes in an unacceptable
category . . . My wife is now disabled and cannot walk any distance due to
back pain. I am now 84 and have Parkinson's. Now our only option is to
downsize into a smaller property, two-bedroom bungalow instead of our 4-bed
one. This wouldn't solve our problems, might even make things worse having
less facilities. Property prices have not recovered enough to even give us
enough capital to purchase outright a retirement flat, even if we were to put
this bungalow on the market. So we are stuck.
(Jack, age 84, marginal consumer)
Finally, our findings also suggested that, even where advisers do warn con-
sumers or highlight potential long-term changes that may affect their future
options, consumers do not always take the information into account.
The limitations of the `information-and-advice' paradigm in protecting
vulnerable consumers ± particularly marginal consumers, who are already
likely to have fewer choices ± raises questions concerning the MMR's
emphasis on financial advice, against the backdrop of the FCA's ostensible
commitment to appropriate regulation for differentiated consumers. In the
equity-release market, reliance on information and advice has tended to
exclude consideration of other regulatory tools (for example, regulation of
terms) or other forms of state intervention (for example, in pricing). As
Barker has noted, `in every walk of life, people's ability to cope with
paperwork, decision making and dealing with financial and legal profes-
464
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
sionals varies tremendously.'
65
Our findings underline the implications of
this heterogeneity for the value of a regulatory regime that applies what is
effecti vely (with th e exclusion o f finance pro fessiona ls and HNW
individuals) a one-size-fits-all approach of compulsory, paid-for-by-the-
consumer, financial advice to a differentiated equity-release population.
CONCLUSIONS
In 2009, the Financial Services Consumer Panel (FSCP) published a scoping
paper on Financial Services and Later Life,
66
which reported that, while
significant progress is being made towards addressing consumer detriment in
later life, a more proactive approach is needed to address current market
failures, with the landscape of financial decision making for older consumers
only likely to grow more complex into the future. The report noted that the
development of new and increasingly complex products designed for the `de-
cumulation' stage of financial life places older consumers at risk of making
poor choices, and could lead to individual detriment as well as increased
costs for the taxpayer.
67
These findings led the FSCP to strengthen its
commitment to work with the FCA and the government to develop
appropriate consumer protection for older consumers. Particular areas for
attention included the need for a bespoke advice standard for later-life advice
as well as working towards a better understanding of how `mainstream'
projects (such as the FSA/FCA's financial capability work) need to be
adapted to address the specific needs of older consumers.
68
For example,
research into information, guidance, and advice found that older consumers
are often excluded from the growth in consumer-oriented information due to
their lack of access to new technology, lack of mobility or social isolation,
lack of trust in financial institutions or preference not to ask for help.
When the FSCP `traffic lighted' the materiality and the probability of
detriment resulting from (i) inappropriate equity-release products, (ii) high
charges/costs and (iii) emotional/psychological harm resulting from equity-
release transactions, five of the six variables carried an `orange' moderate
level of risk/medium probability, even after allowing for widespread uptake
of individualized financial advice. The regulation of equity release has also
been reviewed by the European Commission, which in 2009 published a
study on the issues and laws governing equity-release schemes across the
465
65 C. Barker, `Good Legal Advice' in German ed., op. cit., n. 58, p. 70.
66 J. Wells and M. Gostelow, Financial Services and Later Life: A Scoping Project for
the Financial Serv ices Consumer Panel (2009 ), at cp.org.uk/
publications/pdf/fscp_laterlife0609.pdf>.
67 id., p. 1.
68 For example, much of the financial capability agenda is delivered through new
technologies, which is likely to reduce its reach amongst older consumers.
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EU, with a view to considering whether EU action is justified in this area.
69
Concluding that legal conditions for equity release in member states are
`generally favourable', it noted that `consumer protection law may require
some adjustment since some information obligations are not entirely
appropriate',
70
and `the vulnerability of the customer base will mean that
this market will always be supervised as having a high risk of consumer
detriment.'
71
Following the financial crisis, the British government made an
explicit commitment to a more responsible regulatory regime, and the FSA
2012 has purportedly signalled a philosophical recalibration towards a more
interventionist and pre-emptive regulatory philosophy in the realm of
consumer protection, with a stronger emphasis on market responsibility.
Yet, with the Mortgage Effectiveness Review concluding that this small
but strategically important market `works well for most customers most of
the time',
72
it was notable that generally good outcomes were not seen as
conse quent on (p aid-f or-by -the-c onsum er) pro fessi onal ad vice, b ut
independent of the regulatory requirements. The MER findings were linked
to factors such as the tendency of lifetime mortgage consumers to shop
around (doing this for themselves rather than relying on brokers),
73
and the
consumers' understanding of the risks and features of the mortgages they had
taken out, based on their own research.
74
Generally, lifetime consumers
conducted extensive personal research over a long period of time, weighed
up the benefits and disadvantages of products against the alternatives, and
discussed the decision with family members.
75
Against this, the MER noted
that the amount of time taken to make the decision depended on the urgency
with which the funds were needed.
76
Our findings reinforce the suggestion
that, for those consumers who are able to negotiate the market themselves,
professional advice is irrelevant, while for those who are most vulnerable, it
is inadequate.
The focus on `extending' financial advice from near-universal voluntary
uptake to become a mandatory requirement to protect `vulnerable' con-
sumers casts an interesting light on the United Kingdom's current approach
to regulating equity release as a `high-risk' product and its consumers as
`vulnerable', with implications for the extension of the `advice paradigm' to
`vulnerable' consumers across the mortgage market. As `conventional'
repayment mortgages have been subjected to additional requiremen ts
466
69 U. Reifner et al., Study on Equity Release in the EU (2009), at
internal_market/finservices-retail/docs/credit/equity_release_part1_en.pdf>.
70 id., Executive Summary, s. 7.
71 id., p. 36.
72 FSA, `Mortgage Effectiveness Review: focusing on higher risk areas', FSA/PN/047
(2007), at 2.
73 id., p. 5.
74 id., p. 6.
75 id., p. 12.
76 id.
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relating to affordability and responsible lending practices, less has changed
in relation to equity-release regulation. This is potentially revealing of the
FCA's ± and the MMR's ± broader regulatory philosophy. In the mortgage
context, the validity of a strategy for responsible borrowing that rests on
information disclosure to enable informed consumers to make rational
choices has been thoroughly undermined,
77
with the FSA recognizing the
need: `. . . to protect consumers from themselves'.
78
Our research suggests
that the degree of consumer protection delivered through the `advice
paradigm' is similarly unequally distributed according to the socio-economic
context of the consumer. Our findings suggest that there is variation in the
extent to which financial advice is useful in helping older people to negotiate
the equity-release market, and to be clear about the implications of their
decisions.
While financial advice was viewed as worthwhile and helpful by many
consumers, it was most useful for those (predominately non-marginal con-
sumers) who were prepared to receive advice, who had already researched
the options, and who knew what questions to ask. We also found that equity-
release decisions were informed by a range of psychological biases and
conte xtual f actors i nclud ing pers onal an d financ ial cir cumsta nces,
embeddedness within particular communities and networks, and the nature
of the relationship between the consumer and the financial adviser. This
implies that the information and advice paradigm (upon which the regulatory
framework is based) is of limited and unequal value in delivering consumer
protection: calibrated to the needs of less vulnerable consumers (those who
are able to research, plan, and know what questions to ask, either because
they are financially capable themselves and/or have friends or family who
can help them to prepare), it is least effective in protecting the most
vulnerable consumers.
The differences identified in our research across the role and usefulness of
financial advice to support equity-release decision making for marginal and
non-marginal consumer populations raise three related questions for policy
consideration. First: to what extent can mandatory financial advice ± paid for
by the consumer ± be viewed as an appropriate mechanism to support good
decision making across the equity-release consumer population? Our study is
the first to focus on the role of financial advice with respect to consumer
choices in the equity-release sector, and our findings suggest that while
financial advice was viewed as worthwhile and helpful by many consumers,
it is most effective for those (predominately non-marginal) who are most
prepared to receive advice, who have already researched the options, and
who know what questions to ask. This suggests that while reliance on
financial advice as the principal vehicle for consumer protection may meet
467
77 See S. Nield, `Responsible lending and bo rrowing: whereto low-co st home
ownership?' (2010) 30 Legal Studies 610, at 616±17.
78 FSA, op. cit., n. 20, para. 6.12.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
the needs of some consumers, for others, particularly more vulnerable con-
sumers, additional measures might be considered to enhance the effective-
ness of the advice process. Such measures might, for example, reflect the
importance for advisers to be sensitive to the needs and circumstances of the
consumer not only in the present but in future; the importance of the
relationship between the consumer and the adviser, and the role of `soft-
skills' training in supporting a positive relationship in which the consumer
feels able to ask questions; and an awareness of the importance of the
con sum ers ' kno wle dge -an d-u nder sta ndi ng st art ing p osi tio n, wi th
implications for their ability to ask questions.
Secondly, the differentiated value of (mandatory) financial advice for
equity-release consumers is cut across by the absence of remedies such as
warranties or returns, while:
. . . the low frequency with which the average consumer interacts with a
financial product provider seriously limits the efficiency of reputation building
as a disciplinary device, especially when the transactions and experiences of
other market participants are not publicly observable.
79
In such contexts, the presence of law serves an important role in building
consumer confidence. With this in mind, it is important to reflect on the role
and relevance of advice within a framework of additional potential inter-
ventions which meet the specific needs of the differentiated equity release
consumer population. While the Ready for Ageing report
80
underlined the
strategic importance of a `safe and easy-to-understand' equity-release
market
81
to address the `quite considerable' failures that are linked to the
underdevelopment of this market, the Mortgage Market Review, and the
FCA's approach to regulating equity release to date, is likely to be
insufficient to promote consumer confidence and so address poor take-up of
commercial equity-release products. As such, it may also be appropriate to
consider additional strategies, for example, control over terms, if the
regulatory model is to achieve its aims of protecting the differentiated
consumer population, in the interests both of individual consumers and
confidence in the sector as a whole.
Thirdly, analysis of the value of financial advice in meeting `information
vulnerability'
82
has an important role to play in mapping out the contribution
that FCA regulation of equity release can make within a wider state strategy
468
79 Carlin and Gervais, op. cit., n. 50, p. 72.
80 HL Select Committee, op. cit., n. 5.
81 id., para. 41. `Equity release could enable more people to use their assets to help pay
for the cost of their social care (see Annex 11), to adapt their homes (see Annex 16),
and to support their incomes' (para. 138).
82 For an excellent `taxonomy of consumer vulnerability', mapping out the categories
of: (i) information vulnerability; (ii) pressure vulnerability; (iii) supply vulnerability;
(iv) redress vulnerability, and (v) impact vulnerability, and highlighting the bases,
justifications, and targets of market interventions, see P. Cartwright, `The Vulnerable
Consumer of Financial Services: Law, Policy and Regulation', Nottingham Financial
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School
to support and enable good equity-release outcomes for vulnerable con-
sumers. The House of Lords' Select Committee suggested a range of other
areas for consideration, including greater control over products (making
products safer and easier to understand, for example, through the `no
negative equity' guarantee), as well as state intervention in the financing of
products. The government's recent commitment to extend the universal
deferred payment scheme to pay for care costs is one such example; other
direct interventions might include a state role in improving the value for
money of equity-release products. While consumers have identified a
perception of poor value for money as one of the reasons for low uptake,
83
market research has suggested that ± in light of the longevity and future
house price risks that the providers must cost into their pricing ± without
state intervention there is little scope for the achievement of better value in
the marketplace.
84
As such, the role, relevance, and limits of the FCA's
consumer protection agenda in relation to equity release ± particularly for
consumers who make choices under constraints, as well as for those who are
less well-positioned to benefit from professional advice ± also casts a useful
light on debates surrounding the multiple roles of the state (through law,
regulation, policy, and potentially as a direct participant in the market) in
supporting consumer confidence and good consumer outcomes in this
strategically important market.
469
Services Research Forum (2011), at
publications.aspx>.
83 Rowlingson and McKay, op. cit., n. 6.
84 Financial Services Consumer Panel, Report on the value of equity release products to
UK Consumers (2006), at
equity.pdf>.
ß2014 The Author. Journal of Law and Society ß2014 Cardiff University Law School

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