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With the new Consumer Duty Regulation now just a matter of weeks from being implemented, what impact will this have on the later life lending market and, in turn, what does the future look like for those offering advice to later life consumers? Could referral relationships with specialist advisers become even more critical in order to avoid ‘foreseeable harm’?

Implementing new regulation in the Financial Services industry is never an easy process as advice firms often have to invest considerable amounts of time and money in order to change existing internal procedures and business principles in order to comply.

On the other hand, a change in regulatory pace and focus can bring new opportunities.
Research carried out recently through Opinion Matters with 1,000 consumers aged 45+ showed that, of those who had heard of the impending Consumer Duty regulations, 50% felt Consumer Duty would have an overall positive impact for consumers, with just 10% saying the outcome would be negative.

Although there has and probably always will be a degree of cynicism towards the industry from some, this research suggests that new regulation can instil a degree of confidence in many consumers, especially when its objective is focused on better consumer outcomes.

And the new ‘cross-cutting’ rule that requires advice firms to avoid causing foreseeable harm to clients (something we touched on in last month’s newsletter) is a perfect example of how a piece of regulation can become a new business opportunity for market growth.

As the new rules come into force, advice firms right across the spectrum of the market will need to consider more formalised relationships with specialist, expert referral partners, where these do not exist already.
The most recent ‘Introducing the Introducers’ research conducted by Key Partnerships suggests that 41% of firms already introducing equity release referrals to a specialist partner expect this side of their business will grow over the next 1-3 years, with this figure increasing to 57% when looking further ahead over the next 3-5 years.

Furthermore, 27% of introducers think this growth will be “substantial” (more than 30%) which is three times the figure we saw in the 2021 research conducted at the height of the Covid pandemic.

And while no doubt the current market conditions and outlook have cooled the expectations of some introducers – with 34% expecting equity release referral volumes to be lower over the next 1-3 years – the new Consumer Duty regulations will provide more impetus to substantially increase introducer activity and volumes.

Referral business can be profitable business for an advice firm. Typically, we see much higher average case sizes from introducers than clients who go direct to later life advice specialists. Based on 2022 statistics and comparing to the average equity release market case size, referrals from Accountants were 46% higher, from Wealth Managers they were 28% above the average and from Mortgage Brokers the figure was 17% higher.*

Although 2023 cases sizes are likely to be lower – a consequence of a lending market now impacted by higher interest rates and lower maximum LTVs – this positive differential between average case sizes and those introduced through referral partners has been a consistent feature of this market and we would expect to see that continue through 2023 and beyond.
It's an indication of just how successful and profitable referral relationships can be when you work alongside a specialist who understands the market that can deliver the solution your client needs.

In our final article, we’ll look beyond the Consumer Duty implementation to consider how introducers can include later life lending as part of their customer proposition and the future growth potential of this market.

The referral opportunity

How Key Partnerships can help