James Hickey: A new product for planners

According to a Trowbridge Deloitte report released earlier this year, the potential market for reverse mortgage products in 2010 could be as much as $12-$15 billion.

Currently, the market is valued at around $1 billion, but the forecasted population bulge — made up of retiring baby boomers — could see enormous growth in this sector over the short-term.

Australian financial product providers certainly see this as an opportunity, with around 10 new entrants into this market in 2005 alone.

James Hickey, partner at Trowbridge Deloitte, says: “Our report was really to say that if a lot of providers are seeing the opportunity for the product in the marketplace, and there is a natural ageing demographic and a lot of wealth tied up in the housing market and it seems to be under-represented at the moment in terms of take-up of the offering, then the channel we saw that was ideally suited to offering the product was financial planners.

“A lot of their clientele are going to be moving into retirement, and we actually felt the product was very well-suited to financial planner clients — that is, those people who weren’t financially desperate, so they were probably using the product more as a diversification offering; a way to work in conjunction with their allocated annuities.”

According to Hickey, misconceptions about the product still exist, with some consumers believing they are only appropriate “for those who are financially strapped and need to get some money”.

With financial planners facing more enquiries from clients about the suitability of reverse mortgages, Hickey says that dealer groups have been forced to examine whether they are appropriate for inclusion on recommended product lists.

“I believe there are a number now who are considering it and are doing the research,” Hickey says.

He adds that the Trowbridge Deloitte report was aimed at identifying the potential risks to dealer groups of selling home equity products, and how to mitigate those risks.

“Obviously a big one that came through was reputational risk, for the dealer group. These products when they are sold to financial planners are advice-based products, and so the planning group itself with FSRA requirements has a duty to make sure the advice given by its planners is correct, well researched, and within the guidelines approved and agreed by the planner group.

“So, I suppose reputation of the planner group was seen as a big risk,” says Hickey.

“Another planner group risk was a lack of regulatory control around the product. At the moment, it’s not covered by FSRA; it’s only covered by the Uniform Consumer Credit Code, which covers debt style business,” he adds.

But he says the launch of the Senior Australian Equity Release Association of Lenders (Sequal) “has given advisers confidence in the product”.

Trowbridge will be joined by Kieren Dell of Sequal at the FPA conference. Sequal was formed earlier in the year in order to set voluntary codes of conduct for member organisations, including a requirement that all providers offer a no-negative equity guarantee for consumers.