Master Later Life Lending - By Air

Adapting to Consumer Duty and Beyond

• Paul Glynn

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Unlock the keys to mastering later life lending in our episode featuring insights from Kelly Melville-Kelly of the Equity Release Council and Ollie Jones from Deloitte. Learn how the latest consumer duty regulations are reshaping the advisory landscape, making it imperative for financial advisors to adapt and thrive. With Kelly's expertise, explore groundbreaking initiatives like mandatory income and expenditure assessments, designed to enhance transparency and client outcomes. Ollie brings to light the critical importance of aligning with the Financial Conduct Authority's feedback, ensuring that firms can effectively monitor and refine their frameworks post-implementation.

We promise to equip you with strategies to move beyond mere checklists and foster meaningful client relationships. Discover how simplifying financial concepts and employing technology can make financial advice more accessible and comprehensible for clients. With a focus on emotional intelligence and a personalized approach, we explore how advisors can ensure clients truly understand their options. This episode is not just about regulation, but about transforming a complex advisory process into a client-centric journey, ensuring that both advisors and clients achieve the best possible outcomes.

The Master Later Life Lending Podcast is aimed at qualified advisers in the mortgage or financial services industry. 

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Paul Glynn:

Welcome to Master Later Life Lending, the podcast where we explore the latest trends, strategies and insights for advisors that specialize in later life lending and equity release. I'm your host, paul Glynn, and we're looking into a topic that's raising the bar across the industry and asking if consumer duty will change the way we advise later life customers, with new regulations reshaping the way we advise clients. This episode will focus on how these changes are impacting the advice process, product recommendations and the way we support vulnerable customers. We'll also be taking a close look at real world case studies that highlight how advisors are implementing consumer duty in practice.

Paul Glynn:

Joining me today is Kelly Melville-Kelly, director of Risk Policy and Compliance at the Equity Release Council, and Ollie Jones, an Associate Director at Deloitte. Both will share their expert insights on the practical steps advisors can take to meet these new standards and continue delivering excellent service to their customers. This episode is sure to offer valuable guidance and tips for thriving under consumer duty, so let's dive straight in, kelly. Ollie, thank you for joining me today. Just tell our listeners and viewers a little bit about your day. Risk Policy and Compliance at the Equity Release Council.

Kelly Melville-Kelly:

And what I do on a day-to-day basis is represent the interests of our members, be that with the regulator, with the treasury, with the ombudsman. We exist as a trade organisation, but we also are a standard setter and we look to increase standards in the sector and make sure that customers get the outcomes that they need.

Paul Glynn:

Thanks, kelly and Ollie a little bit about you?

Oli Lewis Jones:

Sure, so I'm Ollie Lewis-Jones. I'm an Associate Director at Deloitte. Me and my team work with clients across later life lending and broadly across retail financial services, helping them meet FCA obligations.

Paul Glynn:

Thanks, Oli, Really grateful for both of you spending time with us today and I'm really looking forward to the conversation as it unfolds over the next half an hour or so. So let's get straight into it. Okay, so I want to look at quickly the you know, a reminder really of where firms should be right now in terms of consumer duty, because it's been with us for a little while now. It's been well signposted, but it'd be really good to hear from the two of you where you know where firms, as a reminder, should really be right now. So, Oli, can I come to you first?

Oli Lewis Jones:

Yeah, of course. So obviously the deadlines we had the 31st of July 23, for open products and then 31st of July this year for closed products. So ultimately the rules are now in force, whatever kind of portfolio you have. So firms should be compliant and I think it's fair to say the FCA is now thoroughly looking at how firms have have done this and are starting to feed back on that. So I think, in terms of clients we work with, I think everyone worked really hard to get over the line by the deadline that few firms had some carryover actions.

Oli Lewis Jones:

I think we're now in a place where actually firms are refining and enhancing their frameworks and really getting used to this in a BAU environment, and I guess that is then playing through in terms of feedback coming back from the regulator. So I think the regulator is still looking at how firms are doing this. But I think an early pointer on this is the recent thematic review that the FCA has published on firms' compliance with PROD4, which actually applies to product governance in insurance products, but actually so that supplements or kind of precedes consumer duty in that product space. But actually what we expect is that feedback will be similar and we expect to see similar themes in lending as well. So some feedback there from the FCA in terms of how firms think about their product governance and we should be looking at that and think about how that applies in our sector as well. Think about their product governance and we should be looking at that and think about that, how that applies in our sector as well.

Paul Glynn:

Thanks, Olly and Kelly. You know the same from you, really. But also with a view on, in parallel, what the council's done to support firms through the last period in implementation.

Kelly Melville-Kelly:

Yeah, I think firms are only really starting to learn now that the deadline's passed. I think everyone was looking at the 31st of July and thinking there was going to be a big bang and everything was going to be perfect. And we know that's not the case. Firms are still testing, they're still learning, they're still growing and we're trying to help our members very much with that.

Kelly Melville-Kelly:

We launched our new version of the standards earlier on this year, which was designed to help support advisors, especially around consumer duty. So some of the changes that we implemented were things such as mandatory income and expenditure, paul, because a lot of advisors prior to that weren't actually completing income and expenditure and really looking at alternatives, documenting alternatives. And it's not enough for an advisor now to take what the customer says per se and say, oh, I don't want to use any of my surplus income, for example, to pay anything off. An advisor has to go further. They have to actually have the conversation, document the alternatives, position them with customers. So we have tried very hard to update our standards to help support advisors meet those requirements, and not just from the regulator, but it's starting to flow through from the ombudsman and complaint decisions as well.

Paul Glynn:

Right, okay. So, ollie, then just thinking through, then, if firms have implemented consumer duty and you're starting to see, you know, some of the implications and impacts of that around you know the examples Kelly's given us around surplus income how can firms better monitor the outcomes of their advice to ensure that they're able to say you know, it is driving what it's supposed to drive?

Oli Lewis Jones:

Yeah, absolutely so, and actually monitoring outcomes is a key part of what firms need to be doing under consumer duty. There's a couple of points to this, so you need to think about the information that's going to help you do that, and I think there's really a couple of things. One is the data metrics that you have around that, and there's some obvious metrics that firms should be looking at in terms of, say, things like complaints data not taken up data, quality assurance data. But I think that gives an indication. And what firms need to be doing as well is what we call outcome testing, and I'll draw a distinction here between outcome testing and quality assurance work or quality assurance reviews, which generally based on sort of advisor competency, very focused on whether or not the advisors followed the right process.

Oli Lewis Jones:

So outcome testing, as the FCA talks about it and as we think about it, it's very much focused on the consumer and their own individual journey through the advice process or through other parts of the overall lending journey, and we'll be focused on all the touch points that they have and really understanding what the outcome for them looked like and what that allows you to do when you when you look at um files in that way is think about, okay, what you know.

Oli Lewis Jones:

Do we think this was the right outcome based on all the circumstances if it wasn't, what actually was the issue here and sometimes I'll be the advisor, other times it might be other issues, um, for the firm. So it might be things around systems, might be things around processes and policies. It gives you that much broader view on actually what it is that might be driving poor outcomes. And the last part I would probably just pick up on is so all of that information you're taking from outcome testing and from your wider metrics, it's, then, really important to make sure that you are taking that information, getting it in front of the right people within the business to take action on that, and that you can demonstrate that to the regulator in due course and through your annual board reporting. Thanks, oli.

Paul Glynn:

And I think we are seeing in day-to-day, in error, some of these impacts manifest in themselves as well in advisor activity. So, you know, if the objective of consumer duty was to raise the bar, then we are seeing a change in advisor behavior, certainly in our own metrics. So we're seeing more Rio, kfi and sourcing outputs. We've seen more product innovation from the lenders as they start to refine and retarget their product designs at groups with different needs and it's becoming a way more complex market. So how should firms really ensure that advice aligns with specific needs of those customers, um, and in particular, uh, vulnerable customers, um, and and how? You know a supplementary for both of you as we work through this. You know how has that changed as a as a result of, of uh, consumer duty.

Oli Lewis Jones:

So, ollie, can I, can I ask you that one first, sure, and I think I'll probably pick up on some of the points that kelly's already made in in terms of um, so the enhanced standards, um. So I mean the fca has been talking about this for a already made in terms of the enhanced standards. So I mean the FCA has been talking about this for a few years in terms of what it wants to see from advisors. Some of this is back to basics in terms of really making sure you understand the customer's financial situation, making sure that you're doing that income and expenditure assessment and you're understanding whether is um an income surplus and challenging um customer preferences. Uh, you know, or kind of assumptions about um. You know not making repayments, um, and I think where customers are using it.

Oli Lewis Jones:

As for debt consolidation, actually thinking about what, what alternative are there that the customers might be, might be pointed to um. And then I think the other thing is is about actually the personalization and the communication of the advice to the customer. So actually making sure that that that is specific to them, that we're not using um generic wording um inappropriately, and that we're taking the time to go through that with um, with the customer um. And I think the final point I'd make is actually really important and the fc will expect to see records of that and good record keeping of of what you've done and how you have personalized that advice for the customer yeah, I, I think I think we're always going back to you having to really tell a story.

Kelly Melville-Kelly:

You know, you, and what I say to advisors is make sure that if anyone picks up your file, they know exactly what you've done and why you've done it. You know the file should tell the story of the customer and that individual customer. So you know, know what their children are, know what their plans are, document it. And I think we went almost too far the other way with having a tick box mentality many years ago. So it's really getting back to knowing your customer and making sure that you ask the right questions, making sure that you challenge the customer when required and don't always accept what they tell you, because very often you have to dig deeper and you have to put those challenges in for the customer.

Kelly Melville-Kelly:

I think what the points that Ollie made are really really important Income and expenditure. How on earth can you justify your recommendation if you don't know if they've got any surplus? How do you know that interest served wouldn't be better? Or a real or a standard mortgage or a loan? You know you really need to open wider and look at those different options. And, paul, your point about innovation it's great because we have seen new products and lenders come into this space and innovate and we need to embrace that. But in order to embrace it, we all have had to learn some new skills in order to do that had to learn some new skills in order to do that.

Paul Glynn:

Yeah, and customers are having to embrace a broader, more complex set of product descriptions and other things. So I just I just want to work through a in a in a bit more detail. If, if we are having robust conversations with customers and and it's documented in the right way that that's got to help through that challenge and discussion process, which is where the advisor can add huge value, it's got to help improve customer understanding. But how do firms ultimately fully ensure that customers understand the advice that has been provided in the first place and, more importantly, the products that have been recommended in what's become a more complex world?

Kelly Melville-Kelly:

Yeah, I always when I so my background. I've been an advisor, I've managed advisors and I think from an advisor point of view, there's three questions you can ask at the end of any engagement you've got with a customer. So if you can ask the question, the first question, what have we done, why have we done it and what costs are involved and if the customers can answer all three of those questions there and then you know they've got it, you know and you can write that you've asked those questions, that they've answered it. But if they can answer those three questions, you know, even at the point to see it all there's an issue, that there's something that they haven't fully understood and that you know. You need to go back over and explain and make sure that they've really captured what it is that you're doing and what you're recommending.

Kelly Melville-Kelly:

I think in our sector we also have the benefit of independent legal advice, benefit of independent legal advice. Now, that doesn't by any means mean that an advisor shouldn't check that understanding, but it also means that there is that third party who double checks that the customers fully understand what it is they're getting into and whether or not they have capacity and they're not under duress. So I do think we have that. But that means that it shouldn't be a sweep all. It shouldn't be a protection. The advisor should have captured that right at the get-go.

Paul Glynn:

Thanks, kelly. And I think the other piece that comes through in consumer duty and practice is the greater obligations on both the principal and the lender in terms of distribution oversight firm principal and lender in terms of, you know, distribution oversight, and and then the quality be quality and suitability of of advice in a firm. So, um, what steps can firms take to ensure that processes are in place for overseeing that quality and suitability, and what are the some of the wider impacts?

Kelly Melville-Kelly:

so, um, kelly, can come to you, come to you first and then we'll go to you holly yeah, I think, from a lender point of view, they're checking to make sure that their products have been distributed in the way that they'd manufactured them, you know, and that means that they're they're hitting the target market, that they're not selling features that aren't being used, and and there's there's quite a lot of insights that the lenders now require to go further and further to understand that the customers have been sold the right products and there's an obligation on the advisory side to evidence that and to prove that they are hitting target markets and that they're doing the right thing by customers, and that might be things like, you know, an ahoy and not taking ups or cancellations, or perhaps customers take out a lump sum and then very quickly come back for a further advance.

Kelly Melville-Kelly:

Was that advice done in the right way at the very beginning? Could there be drawdown, you know, recommended? So there's a lot of triggers and a lot of things that firms can look at, and I think we have to get much better at both of triggers and a lot of things that firms can look at, and I think we have to get much better at both the lender and the advisor of sharing that information and making sure that it's available and for the benefit of the customer Going on to the advisor, they have to make sure they do what they say in the tent. They have to make sure that they're doing their fact, find they're doing their income and expenditure, that they've got their QAa processes in place, that they're being challenged, um and all of that. They're going to have to keep evidence, and not just to the regulator but to the lenders when they require it yeah, and that they're exploring all of the aspects of that fat fine process.

Paul Glynn:

They're not. They're not missing bits out. I mean some of it could be quite crucial to the end outcome. But you've already touched on income and affordability, kelly. That where that crucial. I think health equally is important in that these days because the product shape can change based on those inputs massively.

Kelly Melville-Kelly:

And just by asking one or two more questions of a customer, you might find that you can get a reduced rate based on their health. It's the opposite of protection. Protection the more health issues you've got, the more expensive a product becomes, and it's the opposite. Now you know that sometimes that even just given weight and age can actually give you a reduced interest rate for the customer. So I think you're absolutely right and I know that a lot of the research has shown that the take up weight for doing that is still very low. The other one I would flag is vulnerability. We should not be skipping any vulnerability questions whatsoever in a fact find and I have seen fact finds in the past that have allowed that to happen and that is a no-no going forward.

Paul Glynn:

Thanks, kelly and Ollie. This does seem to overlap hugely with outcome testing and that kind of thing.

Oli Lewis Jones:

I think that's right. I think probably what I'd say here is actually this is from an oversight perspective. This is where the TNC scheme is actually really important as well. And making sure that your QA framework is picking up all of these bits that we're talking about from the fact find and actually the advice process that should be going through and really having having that really good view of where your advisors are, um and and having that sort of risk-based approach where you're you're focusing attention on people advisors who might need that, that extra support, but also, on the training side, actually, that we're feeding back into the advisors through their training, what we're seeing in terms of our outcome, testing themes, things that people need to be thinking about and sort of trends in that space. So it all works together. And then that data should be feeding up, as we say, into all the metrics that management should be looking at and that lenders should be thinking about, as well, it's really helpful.

Paul Glynn:

Thanks, holly. I think I want to just explore with the two of you, given some of the backdrop of the things we've covered in the earlier part of this episode, I want to spend the last part of the episode looking at the real world application of some of these things in practice and getting the benefit of your expertise, so really giving our listeners some things to think about, whether they're mortgage specialists or an equity release specialist or a broader financial planner. So a kind of on the spot question for both of you. That's got a broader context. So what methods are used to communicate complex financial concepts in a way that customers feel is clear and, more importantly, is transparent, which has got to help everybody. So, kelly, your thoughts on that one first.

Kelly Melville-Kelly:

Yeah, I think clear and simple is the way. I've seen some great technology being used now I know AER is doing that being able to actually look at different options outside of equity release or lifetime mortgage and comparing the other options, especially with maybe a Rio or term interest or a capital and interest.

Kelly Melville-Kelly:

We really have to lay out to customers what it means for them, what the benefits are, what the costs are, especially over a longer period of time, so that they're in an informed position when the recommendation's done and I have seen and heard some brilliant examples of where someone comes in with blinkers on expecting that they're going to take our equity release because that's what their friend had told them to take out and they walk away with something completely different which is right for them for now. And it might be that Lifetime Mortgage is tomorrow's sale, but for today, the advice and the recommendations of the advisor was absolutely. If affordability was there, you do the right thing for the customer and know that the customer will come back and look at you for tomorrow.

Paul Glynn:

Ollie, is that something that you recognise? Yeah, and.

Oli Lewis Jones:

I think if I just perhaps think this more broadly in terms of how we communicate information to customers and, and, um, how firms have have really sort of thought hard about this over the past couple of years as they've implemented consumer duty and the consumer understanding outcome, um, I think firms have been exploring different techniques and and, and a few that I think really kind of work and resonate are um, actually, you know, taking your documentation and thinking about how you, how you apply layers to that. So you know a very complex document that needs to convey an awful lot of information, actually summarizing that up front, guiding the customer through with signposting, helping them navigate a complex document and then actually using visuals as well. So this isn't just all words. Let's say a couple of examples would be around something I've seen where more in the I guess in the pension space, but actually showing a timeline of income over time and how that's projected and actually setting it out visually for the customer and then setting out costs in tables and making that really easy to compare for customers.

Oli Lewis Jones:

So some really good devices that firms can use and techniques. And I think the other thing that I've seen that I think has worked well is where firms have detailed terms and conditions documents that are difficult for non-lawyers to work their way through because they're full of difficult wording. Actually getting a lawyer and a comms expert to sit down together to work through that and understand how you can simplify the wording without changing the legal meaning, and I think that's kind of a rewarding experience for everyone involved and a great outcome for the customer if you can get to a simpler position.

Paul Glynn:

Yeah, and is that an area where AI can support in that layering process? Be interesting to get a take from both of you on that, because it's a hot topic that appears in and out of a number of these podcast episodes, but it'd be good to get your view on it.

Oli Lewis Jones:

I see AI can do some brilliant things in that space. I guess the point is always to go back and double check what the ai said yes, I I would agree with that.

Kelly Melville-Kelly:

I I'm really intrigued to see what what comes with ai, but it comes with the caveats.

Kelly Melville-Kelly:

I think you still need a human to check everything that that's there and to make sure that the customer doesn't go off on a tangent, you know so it's very easy in the AI world to get distracted, and the whole piece here is to make sure that the customer's on point knows exactly what they're doing, knows exactly what they're taking out and what that means.

Kelly Melville-Kelly:

I think we launched something earlier on this year about clear communications. I think we have to get better at explaining some of the concepts in a simpler and easy way to understand. I think the average person in the UK has the reading age of a 10, 11 year old and maths is actually slightly below is actually slightly below. So if you think of trying to explain things like roll-up of interest, APRs, early repayment charges especially if it's guilt-linked and trying to explain those in simple language for customers, it's very difficult and we speak jargon all the time, you know. We use things like ERCs or NNEG or no neg, you know, and we need to get better at simplifying that language so that customers can really understand and that they might be afraid to ask the questions because they don't understand the terminology yeah, so ai can help, but it's not going to replace some of the emotional intelligence or the advisor intelligence involved in that interaction with the customer.

Paul Glynn:

Yeah, um, definitely agree with both of you in terms of that simplicity point and the layering and the making things visual, and that's, you know, that's something that we've we've grappled with as an organization over the last 12 to 18 months in simplifying some of these complex product types and complex issues.

Paul Glynn:

So, um, in our product design for the navigator tool, we we definitely went visual and we tried to distill it down to a solid piece of evidence that a conversation had taken place. So that picks up on some of our earlier conversation. Um, and we definitely went to to to kind of more um, infographic style communication and rag status and and and some simpler things that that would help point the conversation so that the customer knew what was going to come and and signpost in areas that the advisor may want to explore later in the advice process, but but definitely distilling it down to two solid pages of evidence that were pictorial and and had gathered, importantly, the the customer's own view on that, on that conversation as well yeah, and we don't need 20 pages of ability letters, um that that have been cut and pasted into a letter that that confuses the customer even more.

Kelly Melville-Kelly:

We have to be clear, concise, so that the customer has the key even more. We have to be clear, concise, so that the customer has the key points and don't have to go looking for them.

Paul Glynn:

Yeah, and that's definitely an area as an industry we can try and support more, I think, whether that's through, you know, advice, businesses themselves or use of third parties where that simplification can take place. But there are, you know, know there are some good examples outside of of of our kind of later life lending. Part of the industry is there. Is there anything that either of you can draw on that that would be worthwhile, you know, as an example for our listeners or viewers to think about?

Oli Lewis Jones:

I'll probably come back to that, that example I mentioned before. So, um, you know, really showing visually if you're, you know, recommending a switch out of a product, actually you're showing the difference really clearly in the costs.

Paul Glynn:

Um, having that tabulated and and helping that support your, your, your advice and your recommendation kelly, any any examples in in your day-to-day world that you see that that should be highlighted, where people are doing their best to simplify the complex?

Kelly Melville-Kelly:

I'm seeing some great customer portals for the first time emerge, where where the customer can get real-time information about, and not have to wait on their on their annual statement coming through so they know exactly what it is, exactly what they've taken out they they can access all the terms and conditions and know how the interests accrue in so so that's a good example of how I've seen technology and real live data to help customers understand their product post sale and and I think we can get even smarter and better at that going forward brilliant.

Paul Glynn:

Thank you both. Um I I think there's there's so much more that I think we'll see over the next 12 to 18 months as we see consumer duty in practice, particularly in our later life lending space, where there is a growing cohort of customers now that are over 50. Are over 50 and will be coming in, you know, in into more and more contact with advisors on a day-to-day basis, whether they're mortgage advisors or later life specialists, where their needs are becoming way more complex. So distilling that complicated scenario into simple things is going to be really, really important. But I think my core takeaway today, kelly and Ollie, is it's got to be evidenced, it's got to be made as simple as possible and as visual as possible. If we can help with that, definitely let's not overstep or ignore vulnerability or confuse it with the health questions itself, because the two aren't necessarily linked, and I think that's an episode for another podcast in its own right.

Paul Glynn:

But, kelly, the bit that really really landed that I do want to finish on as a takeaway for everybody is those three questions that you mentioned earlier.

Paul Glynn:

So the true test of proper customer understanding throughout this process is you know, if the customer can play back. What have we done, why have we done it and what were the costs involved. I think that's a really good takeaway from this episode. That means we end up with customers who go through a process, the massive amount of work that our advisor will have done to support that customer, because they may have gone down three or four different routes that they've explored before they get to the final possibilities as well as all of that support on the transaction itself so we can get to a space where customers genuinely answer all those three questions. I think commercially, not only will that be a great outcome for the customer, but actually they're probably going to be the best advocate you're going to get to be able to drive referrals and recommendations, because a customer that can answer those three questions can recommend the value of advice and the need to see an advisor. So that's been a brilliant takeaway for me, thank you.

Kelly Melville-Kelly:

Thanks, Paul.

Paul Glynn:

Ollie Kelly, thank you for your time today. We look forward to seeing you both on on future episodes of this podcast. Thank you both. Thanks for listening to the master later life lending podcast. If you've enjoyed our comprehensive conversations, please take a moment to rate and review us on your favorite podcast platform. Your support helps others discover the show, so don't forget to subscribe so that you never miss an episode, and follow us on social media for exclusive content. Join us next time for another comprehensive conversation.