Risk manager Fourth Line undertook an analysis – commissioned by Pension Boost – of SOAs following the introduction of the reform in July 2019 and found that for people older than 65, no SOA mentioned home equity release or reverse mortgage strategies for consideration by clients.
In contrast, of the 5,000 SOAs reviewed, 73 per cent contained advice on super and pensions for people aged 45 and over.
“Fourth Line’s unique and deep data sets enable us to interrogate not only the level of compliance of the advice provided and identify opportunities for improvement, but it also enables us to review the types of products being recommended,” Fourth Line CEO David Travers said.
“This research is an example of the data being harnessed to shed light on the financial advice being provided.”
Speaking to ifa, Pension Boost founder and CEO Paul Rogan believes advisers may not be considering the PLS or other equity release options could be attributed to low awareness about the reform, advisers possibly not having reverse mortgage products and not possessing or having access to an ACL to compliantly advise on debt or loan options.
Mr Rogan suggested that advisers may not be across where the PLS fits in regards to compliance obligations or they may be unsure how to charge for equity release advice.
“Whilst the Fourth Line SOA data shows that the average advised client is reasonably well off financially, there were definitely specific use cases where seniors/retirees had relatively low levels of super and other investments (at the household level) yet had reasonable net equity in their property,” Mr Rogan said.
“We are starting to see some financial planners adopting the PLS for their senior clients – including those who are self-funded as well as part pensioners. A great example is John Hazel at Richmond Partners in North Sydney.”
Accountants can advise on this space with zero consumer protection provided and just charge an hourly rate. As I am a Financial Planner, and ASIC are trying to get rid of Financial Planners, I am required to have a Credit License and also provide a SoA which would be at 5-10 times the hourly rate.
Yes, red tape has a cost.
We received compliance advice that both home equity release and the government pension loan scheme would be “credit advice” so out of bounds for those without a credit licence. At best an AFSL licensed advisers can make the client aware (ie provide factual information) but it couldn’t be a recommendation or included in modelling.
This is why advisers are needed. Following these opinions for most clients is not recommended.
The pension loan scheme is ideal for people whose homes are either well above the value of one or two aged care places, i.e. over $1 million or whose homes are not enough for an aged care place, i.e. under about $300,000. Everyone in-between is much less benefitting as their home equity can be eroded.
Also, unless your home is really valuable ($2+ million) I am very wary recommending the pension loan scheme for people under 73 as they can live another 30 years. This is very much individual consideration.
Why would somebody who is already living within their means consider it? Why would somebody who wants to preserve their home for their children consider it?
I consider it for every one of my clients but in most cases their answer is a well-founded No.