Master Later Life Lending - By Air

Alan Ritchie: Growing the later life lending market

• Will Hale • Season 1 • Episode 2

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In this Comprehensive conversation, our CEO Will Hale sits down with Alan Ritchie, CEO of Royal London Equity Release, this episode explores how Royal London’s mutual status supports a customer-first approach, showcases the benefits of trust, and helps advisers capitalise on demand across an expanding later life lending market.

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SPEAKER_00:

So, welcome again to the next in our series of comprehensive conversations. I'm here with Alan Ritchie from Rural London, and we've taken a break from the Air Conference, and we're sitting at Trackside at Silverstone to do this chat. So, Alan, welcome. Great to see you. Thanks well, great to be here. So I'm going to kick off, if you don't mind me saying, you're a new face in the later life lending market. I think you've only been in role a few months probably. So, for the benefit of our viewers, could you introduce yourself? Um, talk a little bit about your role at Royal London and maybe talk a little bit about the strategy for Royal London, the later life lending space.

SPEAKER_02:

Yeah, definitely. I thought you were going to see a younger face there for a moment. Well, I was going to take that. Um so yeah, I'm relatively new. Um I took over as the CEO for Royal London Equity Release at the start of the year. Um I also have responsibility for Royal London's proposition development across the UK business. Uh so I've I'm an actuary by training. I started in the industry 27 years ago, I guess. First 20 years at Standard Life doing a variety of roles and then moved to Royal London. Um, all throughout my career, what's really got me excited is about improving solutions for customers and advisors. So, how do we make things better? Um, so I've always tried to focus on roles where I've had the opportunity to do that and influence that. Um, I led the workplace propositions at Standard Life for a while, and I've led the protection business at Royal London before now. Um, in terms of our strategy for extra release at Royal London, uh, we have four main pillars. So, one is grow the market. So, and that's probably the biggest one. You know, 20,000 new customers a year to the market is nothing compared with the scale of the customer need that's out there. And the Fedora Finance report showed at your conference today has really pulled it out. So, how do we help? What's the role that Royal London can play to help grow that market? Number one. Number two is about growing our share of the market. We want to be a big player, we want to really help customers. We believe that we're well placed to do that. So we want to grow our presence, grow our share, and help more customers. Number three is about standing out for customer outcomes. So Royal London is a purpose-driven mutual. We don't have shareholders to please, so we can focus 100% on our customers. We can take a long-term view for what's best for sustainable growth. So that's what we're going to do. We're going to really help drive this market and we're going to find every opportunity to do something better and better for customers. And last but not least is scalability. So my full expectation is that in years to come, equity release will become a staple in the market rather than quite a niche solution. And when that happens, providers like Royal London, but also others are going to have to be able to scale up and continue to provide great service across the board when there are many more customers to be supported. Now, at the moment, a lot of the processes in our industry are very manual, and so we need to change that. We need to invest in automation, in AI, and process enhancement. So that's that's the fourth pillar.

SPEAKER_00:

Well it's great to hear those four pillars and a lot of sort of look across to things we've been exploring at the conference today. I think you know market growth has to be fundamental, doesn't it? You know, for for us to step up as a sector and meet that customer and societal need growing the market has to be has to be critical. But I also I like the way you talk about Royal London's long-term view because you know, clearly we've been through some sort of challenging periods, and and actually that long-term view and commitment to the market is is great to hear. So uh no, thank you for sharing that. And and maybe on a build on that, I'd it'd be really interesting to get your perspectives maybe of the last couple of years. I mean, Royal London made quite a significant entry into this market with the acquisition of Responsible. So it'd be interesting for you to share sort of how that's gone and you know your perceptions of the last couple of years, really.

SPEAKER_02:

Yeah, no, good question. So uh the purchase of responsible was a strategic play. Yeah, we could see that the need for customers to access their property wealth was going to be much, much bigger in the future. Um, and so to come into the market early with a ready-made business that's already you know of high quality and high quality people was the obvious way to do it. Um, in the last couple of years, obviously the market's not not gone through that massive upturn yet. Um, but I'm delighted to see some of the positive um um sort of insights and changes and approach come in from the regulator, for example. Yeah, you know, it really feels like we're on the brink of the next chapter, and um yeah, it's been it's been great. You know, I for one have been learning about extra release, uh, lots of my colleagues have too, and it it really feels like we can take the experience of the responsible business, the long-term view and investment from Royal London, and marry it together to achieve the four pillars that I talked about earlier.

SPEAKER_00:

Yeah, I mean it makes a lot of sense from where I'm looking. I mean that it is still quite a specialist niche market. So to bring in that sort of DNA in terms of that market knowledge makes absolute sense. But you layer that on top of the scale, the brand, the broader capabilities at Royal London. That should be a really powerful combination, shouldn't it?

SPEAKER_02:

Hope so, yeah.

SPEAKER_00:

Exciting times. Yeah. And and just talking about Royal London, I say one of my observations is you know, you're obviously a big brand, big consumer brand. You're very active not just in the later life space, but in the pensions investment you touched on the protection markets as well. Yeah. You know, you and I have spoken before, but for me, the opportunity really is to bring later life sort of as part of that broader ecosystem. So, how do you think about that? And what can Royal London do to help sort of break down the silos and really help later life lending be a fundamental part of the broader retirement planning process?

SPEAKER_02:

We have to, yeah. And it feels like increasingly over time, as customers reach a certain age, good advice, whether you're advising thinking about mortgages or thinking about retirement, good advice needs to consider property wealth. Now that could be downsizing or it could be equity release. It might not be relevant for everyone, and that's okay, but at least if advisors can show they've considered it, that's that's crucial. Um, so where Royal London can really help on that is we've got the biggest consultative uh field force in the UK for protection and for pensions. So we have this army of amazing people who are used day in, day out to supporting advisors with new challenges. So new challenges like changes in regulation, new challenges like, oh, I need to now consider property wealth and equity release in my advice. So we're brilliantly well placed through the sort of knowledge we've got from the responsible acquisition and the field force backed by our brand and marketing department who specialise in supporting advisors too. So what we want to do is make it easy. We want to find solutions, we want to go out and help advisors. That might be, you know, here's how you can do it yourself, or it might be here's how you can refer to an expert and make that easy for them. Um so yeah, we're working obviously with with AIR and others in the market to explore how best we do that now.

SPEAKER_00:

Well, if we can get that army out there spreading the word, that's all going to be really helpful, isn't it? So 100%. So fantastic. Um again, coming back to one of the four pillars you talked about, scalability. You say you recently had quite a milestone in launching your advisor portal, haven't we? Which is which is fantastic and I'm sure welcomed by uh lots of our members. Perhaps talk a little bit about that, but also give our members a bit of a flavour of what's next in terms of that sort of investment in technology. I mean, from my perspective, it still feels like as a later life lender sector, we're operating in a the dark ages a little bit. So we've got plenty of room to catch up.

SPEAKER_02:

There's definitely room to go. So the new advisor portal that we launched was really about simplifying the quote and apply experience for the advisor, making it as slick and as easy as possible to support their clients without delays and without lots of repeat entries or any of that. Um so we've done that and touch wood, that's gone well so far, um, and made it easier to do business with Royal London. There's more we can do there. So there are more steps of the process that we can automate, there's more steps of the process that we can make slicker, better, easier. Um, clearly, as a provider, we want to stand out from the crowd and doing that really well, but equally, you know, we see it as a good thing if everyone's investing in that sort of scalability because that's good for the market. Um, as well as the sort of core experience around the quote and apply journey, we want to innovate around the product. How do we better meet customer needs? I think sometimes there feels a bit of an imbalance in the market from my early experience between what the funders need and what the customers need. Absolutely. And if we can you know innovate in a way that meets both their needs much better and start with a customer and then how do we fund it, I think that that will go a long way to helping to grow the market as well.

SPEAKER_00:

So that's an observation I think a number of people have come to. But how how do you reconcile that? Because funder and customer needs are often sort of don't don't sort of work together, do they?

SPEAKER_02:

Yeah, it's tricky. And I'm not I'm not saying by the way that the current solutions don't meet customer needs because they do. Yeah. I just think that there'll be ways of innovating which the funder won't come up with initially because it's not the same as their normal model. Um, but that if if we could create them, then it would really help customers. And I think that's where companies like Royal London can come in, um, try and you know, really understand the customer, really understand the advisor, and then go to the funders and say, if only we do this, look at the size of the prize, look at the return you can get, but look at how we better meet customer needs. And there are a few things that we've got um in mind that we're we're about to go and test with customers there.

SPEAKER_00:

So I won't press you on that because I'm sure you won't tell me, but uh now that sounds exciting. So certainly some innovation coming down the line from rural London, which is great to hear. So fantastic. Um moving on a little bit to a different area, maybe a slightly thorny subject, but I wanted to talk about procuration fees. So you and I have just come out of the compliance corner session, and uh uh one of the panellists who's sort of an ex uh sort of regulator herself did sort of touch very briefly on sort of incentivization and remuneration. So, you know, one criticism that's been levelled against the later life lending market from an advice perspective is the discrepancy in procuration fees between what an advisor can earn and advising on an equity release product compared to what they would earn advising on a mainstream mortgage or a TO or a Rio. So talk to me a little bit about how Royal London look at advisor remuneration and where you see, I suppose, the the risks and opportunities and what your strategy might be going forward.

SPEAKER_02:

Yeah, so it's a really tricky balance because an equity release um we need to up the quality of support around the customer through the equity release council. They've done some really good work to introduce minimum standards. You know, there are lots of parties now included in the process to make sure that the end customer gets a great outcome. Um even in Royal London, we have lots of pairs of eyes checking cases as they go through to make sure that they're they're good and that we deliver the right outcome. Um but we need to find better, slicker ways to do that because um the cost for the customer at the end of the day is is going to be um high relative to what it could be with more investment in things like um automatic checking or um you know getting it right first time in ways that don't require quite the same number of steps in the process. Now, if we manage to do that and if advisors manage to make their process slicker, then they'll be able to make more profit per case with lower fees to their um to their clients or lower payments from us to cover uh their costs. Now, if we can do that, that's a virtuous cycle because then the market grows. So it's cheaper to get equity releases, the interest rates are better because that all flows through to the interest rate. Um you'll achieve scale, scale achieves lower cost. So before you know it, everything's helping uh in that cycle. So I'm excited about that. To answer your direct question about mortgage or retail mortgages, let's say, or traditional mortgages, um, I suppose the challenge at the moment is lots and lots of advisors know how to do traditional mortgages, many fewer know how to do equity release. And uh, although the the fee for the traditional mortgage is much lower, you can go back every couple of years and rebroke and you get paid on an ongoing basis. So, one of the interesting things would be as well as bringing down the costs in the industry and therefore enabling advisor firms to grow without such high procuration fees. How do we help those advisors think about uh ongoing models to support customers where they need it? So, things like further drawdowns, you know, if the customer could be supported by an advisor through further drawdowns, they're probably going to get a better outcome overall. Um so that then the remuneration needs to fit to that, yeah, and there needs to be some sort of ongoing sort of uh value to the advisor in order to give that service.

SPEAKER_00:

I completely agree with with all of those comments. I mean, when when I sit down with with members and running an advice business myself, advising in the later life lending sector is not a high margin activity. There's not many businesses that are making sort of huge profits. So I do worry sometimes if the direction of travel from the regulator is around cutting procuration fees because I feel that you could sort of take advice capacity out of the market. But I think the way to solve that problem, as you say, is we need to reduce the cost of acquisition. So we need to find ways of getting customers into the advice process more efficiently and and with less cost, and then we need to reduce cost to serve to make it easier for advisors to advise those customers and get to a recommendation, and then as you say, if you layer on top of that an opportunity to have sort of ongoing sort of trail type remuneration as well, then I think you've got a market which is going to work sort of better for all stakeholders, but I'm very worried about unintended consequences if we make dramatic changes and we don't change some of the other fundamental barriers that are holding the market back.

SPEAKER_02:

Yeah, and we were talking in earlier sessions in the conference about the opportunity for referrals to ex-release specialists now for an equity release specialist, you know, building building the pipe, if you like, between them and uh other firm forms of advisor or professional who have clients who have needs and they want to serve those needs but they don't want to themselves, you know, that just creates this pipeline of customers to be supported by those who are currently expert in equity release. Now that now the cost per acquisition of a lead that way versus say TV advertising is very different and much better. So if if that can become the norm and the market grows and you have scale and you have lower cost leads, this all contributes to the ability to make it a sustainable commercial model for advisors without having to have super high fees.

SPEAKER_00:

Yeah, if we can industrialise that referral mechanism, that has to be the way forward, doesn't it? Because I mean I I keep coming back to the stat that you know 97% of mortgages, mainstream mortgages, are intermediated. So those customers are seeking advice at some time when they put their first mortgage in place. So if we can just tap into that um sort of intermediary capacity in that mainstream mortgage space, as well as the wealth and investment space we've already talked about, you know, there's a huge opportunity there. So we've just got to join the dots, haven't we, and make the make the landscape work better.

SPEAKER_02:

We do, and at the end of the day, help customers have better outcomes. You know, that's what it's all about. And there's so many that have that unmet need, and they they just don't realise that this is an option.

SPEAKER_00:

Yeah. So coming to some of those barriers that exist at the moment, and again, you talked about the Fera Finance report, which called out some of those, um, particularly around silos, etc. And and we're coming to sort of June where we're expecting the discussion paper from the FCA in term in terms of the mortgage market, which should feature a big part on the later life lending space. So, what would you like to see, whether it be from government, regulator, trade bodies, to to really sort of give some impetus to that to this market growing in the way that it should?

SPEAKER_02:

Yeah, no, it's it's really exciting, and I'm delighted that the FCA is looking at this. Um, I suppose there's a couple of things. One would be that the regulators and the government join up and make sure that we've got a consistent approach to this across the different entry points, really, because obviously you've got mortgage regulation for mortgage advisors, you've got um uh sort of pensions and protection regulation that applies to other types of advisors. So, how do we make sure that for this solution that's about meeting a customer need, there's a consistent approach across the board? The other thing that I would really like to see is the requirement to consider property in these broader advice conversations. So, obviously, if you're a mortgage advisor, you're already considering property, and then it might be make sure you're considering downsizing, make sure you're considering it to release amongst your choices for anyone who's over a certain age. Quite right. Um, for retirement conversations, make sure you're considering the property. You know, depending on the stat you look at, um it's either about 50% or two-thirds of uh customers' wealth in the UK over certain ages in their property. So, how could you have a brilliant conversation about the best way to meet needs without considering the property? And again, it doesn't have to be extra lease, it might be, but it could be downsizing, it could be other options in there.

SPEAKER_00:

Yeah. No, I agree with what and we've got a great opportunity, haven't we, as a sector, to sort of feed into that um FCA review and make our voice heard and hopefully make the difference. But but I think you know, here and now, um, you know, we we can't just sit on our hands and wait for the regulator or trade bodies or government, say um we already work very closely together as as Air and Royal London. But but but how do you see the relationship with AIR and and what more could we be doing to support members together?

SPEAKER_02:

Yeah, good question. Um so obviously we'll we'll work on a number of things together to grow the market. Um, in some ways, you know, our businesses compete against each other, and we we compete when it comes to things like product provision, and that's okay because as long as it's healthy competition and it's about good customer outcomes and driving forward the growth in the market, that's a brilliant thing. More choice for customers is good, more innovation for customers is good. Um, your sourcing platform uh is the most used in the industry, so it's absolutely key to us that we work with you on that and that the Royal London solutions as we innovate are appearing front and centre on that, of course. And um, then of course, there's how you train advisors and grow the advice capability in the market, and events like today are all about that. So we're really keen to support that because again, growing the market requires more advisors, it requires advisors to uh support more of their clients, um, and we want to help you find ways to do that.

SPEAKER_00:

Yeah, I think I think you're right. You know, you know, there are areas we compete, you know, we're there sitting within the broader key group. But going back to your sort of original comments, where we all win is if we grow the market, and I think that needs to be the focus. If if we can work collaboratively to grow the market, then you know each lender will get the share of business that that they need rather than competing ever harder for an even smaller pie, which I think is a race to the bottom and not not helpful for anyone.

SPEAKER_02:

100%. And and uh you know, just to emphasize competition is a good thing. You know, the the most efficient markets in the world have competition. So that's what we want. We want customers to have choice and we want to make sure that customers truly trust the industry and you know we'll lead lead the way.

SPEAKER_00:

Good stuff. So I can let you escape without a couple of predictions, maybe. So um, you know, you I I always like to sort of ask my guests sort of to look into their crystal ball and to sort of um try and predict what the market's gonna look like. So again, I appreciate your fairly new enroll, but but if you sort of look five years or ten years out, sort of what would you sort of how would you envisage the market, both in terms of size but also in terms of I suppose culture and sort of how it has evolved from where it is today?

SPEAKER_02:

Yeah, a few things. So I do think it'll be much bigger. It's it's hard to put a number on that. Um the Fair of Finance report does a good job at putting a number on that.

SPEAKER_00:

So 23 billion by 2040. Yeah, yeah.

SPEAKER_02:

Um, and even if it's uh you know a fraction of that is still much bigger than it is today. So I definitely think um that'll help. I think there'll be more advisor firms in the market at the moment. The top X firms, um, you know, it's it's like the 8020 rule, or even even more extreme than that, that the top X firms cover nearly all the cases. Um, but equally, if we're gonna extend to more and more advisors getting involved in extra release, we need to help them know what good looks like. And it's not that they're just dipping in one case a year, you know, we need to make sure that the quality permeates throughout the industry. Um, and I think it'll become much more uh a core solution than it is today. So I almost feel like um well, yourself and others that have certainly come before me in this in this space have um kept the market going through some tough times. We've got the battle scars. You've got the battle scars, yeah. But you know, we're now seeking to work with you and stand on your shoulders almost to say, right, how do we how do we now the market's gone through that stage, help it blossom and it will.

SPEAKER_00:

Super. Well, Alan, thank you very much for your time today. Thank you also for Royal London support of air. It's really appreciated, and I'm hugely excited about the opportunity to work with you going forward. Me too. Thank you. Nice too. So thank you very much for uh tuning in to the latest of these comprehensive conversations. We'll be back soon with other leading uh figures from the later life lending market. Bye bye.