There are many questions to ask about equity release advice, says Peter Welch, head of sales and distribution at Bridgewater Equity Release
I think it’s vitally important for someone in my position, working for a provider, to spend as much time as possible finding out what’s on the minds of advisers. This involves going out into the field and talking to as many advisers as possible it can also be aided in Bridgewater’s case by our regular broker forum events which bring local advisers together to discuss a wide variety of equity release issues.
There are certain topics which are raised at almost every conversation with an adviser one is the permanent requirement for new customers and how best to generate new leads, a further popular talking point is that of fees. Questions abound such as: how much should I charge? When should I charge a fee? Should I have a fee cap? Because of this ongoing discussion it might be helpful for all equity release advisers if I set out the pros and cons of most of the popular fee models that are being used at the moment.
&’8232Perhaps the simplest of these is to charge no fee at all and to rely solely on provider commission for remuneration. The advantages of this approach are that the customer doesn’t have to write a cheque (or take a lower cash release amount) and apart from maybe a survey fee there are no up-front costs for the customer. It may also help close the business if the adviser is in competition with other firms who do charge fees.
The disadvantages (apart from the fact that the overall remuneration will be less) are, firstly there is no payment for the abortive work the adviser undertakes if the business does not complete. Secondly, there is no consequence to the client if they chose not to proceed with the original adviser. And finally with the broad spread of commissions available from the various providers and products an adviser can’t be certain they’re being paid the appropriate rate for the work they’ve done. This then means that inevitably there will be a degree of cross-subsidy between clients.
&’8232More commonly advisers I talk to are taking commission and charging an additional fee to bring the total remuneration up to the level commensurate with the amount of work put in. The options here are whether to charge a fixed fee or a percentage of the cash released – plus I know one model where the fee is a percentage of the property value. &’8232
Naturally the level of fee will be dictated by the perceived value of the service offered by the adviser. I’ve never heard of any equity release adviser doing less than two separate client meetings before completing the business. But I have heard of up to five meetings taking place which is understandable if members of family are brought into the advice process part way through or if the customer needs additional reassurance or clarification.
It’s therefore always advisable for the adviser to ask: ‘What is the client getting for their fee apart from good, impartial advice?’ The list could include: undertaking product research, producing a state benefits report, help researching an accurate value of the property prior to making an application, producing a suitability report (and providing a copy to the client’s solicitor), liaising with product provider and solicitors until the funds are released, as well as time spent at clients meetings and travel. Some advisers send their suitability reports for third-party compliance checking which also comes at a cost but does provide the client with an extra level of reassurance.
One variation on the fee model which is becoming much more popular now is to bring forward part of the overall fee payment and invoicing the customer at the second meeting for the production of the report. This typically ranges between £195 and £295 for the report alone with the remainder of the fee being paid on completion. The advantages of this approach are that it gains customer commitment, ensures the actual work undertaken by the adviser is properly remunerated (without a fee for the report is it TCF for customers who chose not to complete to be subsidised by those who do) and finally it improves adviser cash flow as it can take up to three months for schemes to complete.
Naturally there will continue to be many various fee models used by advisers. Regardless of the one chosen it’s important that all advisers have their own ‘value statement’ which sums up what the customer is getting for their money. Without this it is much more difficult to justify the charging of the fee in the first place.
