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MCOB 8.5 Advised sales

Suitability: general3

MCOB 8.5.1G

Principle 9 requires a firm to take reasonable care to ensure the suitability of its advice. In accordance with that principle, a firm should take reasonable steps to obtain from a customer all information likely to be relevant for the purposes of MCOB 8.5.

MCOB 8.5.2R

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into an equity release transaction3, or to vary an existing equity release transaction, unless it3 is, or after the variation will be, suitable for that customer (see MCOB 4.3.4 R(2), MCOB 4.3.5 G and MCOB 4.3.6 G).

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MCOB 8.5.3R

In 3this section3, a reference to a recommendation to enter into an equity release transaction is to be read as including a reference to a recommendation to vary an existing equity release transaction3 if the context so requires.

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MCOB 8.5.4R
3
  1. (1)

    An equity release transaction3 will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that:

    3
    1. (a)

      the benefits to the customer outweigh any adverse effect on:

      1. (i)

        the customer's entitlement (if any) to means-tested benefits; and

      2. (ii)

        the customer's tax position (for example the loss of an Age Allowance);

    2. (b)

      alternative methods of raising the required funds such as, in particular:

      1. (i)

        an equity release transaction from the other market sector; or3

        3
      2. (ii)

        (where relevant) a local authority (or other) grant;

      are less suitable;

    3. (c)

      where the equity release transaction 3requires that payments are made to the equity release provider 3(for example an interest-only mortgage), the customer can afford to enter into the transaction;3

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    4. (d)

      the equity release transaction 3is appropriate to the needs, objectives and circumstances of the customer; and

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    5. (e)

      the equity release transaction 3is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

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  2. (2)

    No3 recommendation must be made if there is no equity release transaction 3from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and

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  3. (3)

    If3 a firm is dealing with an existing customer in arrears and has concluded that there is no suitable lifetime mortgage2 for the purposes of MCOB 8.5.2 R, the firm must nonetheless have regard to MCOB 13.3.2 E(1)(a), (e) and (f) (see also MCOB 13.3.4 G(1)(a) and (b)).

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3Suitability: means-tested benefits, customer's tax position and alternative methods of finance

MCOB 8.5.5R

In determining whether MCOB 8.5.4 R(1)(a) applies, where a firm has insufficient knowledge of means-tested benefits and tax allowances to reach a conclusion, the firm must refer a customer to an appropriate source or sources such as the Pension Service, HM Revenue and Customs 1or Citizens Advice Bureau (or other similar agency) to establish the required information.

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MCOB 8.5.6E
  1. (1)

    In determining whether MCOB 8.5.4 R(1)(b)(ii) applies a firm should:

    1. (a)

      establish, on the basis of information given by the customer about his needs and objectives, whether these appear to be within the general scope of a local authority (or other) grant (for example where the customer requires funds for essential repairs to his property); and

    2. (b)

      refer a customer to an appropriate source such as his local authority or Citizens Advice Bureau (or other similar agency) to identify whether such a grant is available to him.

  2. (2)

    Compliance with (1) may be relied upon as tending to show compliance with MCOB 8.5.4 R(1)(b)(ii).

MCOB 8.5.7R

If for any reason a customer:

  1. (1)

    declines to seek further information on means-tested benefits, tax allowances or the scope for local authority (or other) grants3; or

    3
  2. (2)

    rejects the conclusion of a firm that alternative methods of raising the required funds are more suitable;

    3

a firm can make a personal recommendation (in accordance with the remaining requirements of 3this chapter3) where there isan equity release transaction3 (or more than one equity release transaction3) that is appropriate to the needs and circumstances of the customer, but must confirm to the customer, in a durable medium, the basis on which the personal recommendation has been made.

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MCOB 8.5.8R

In determining whether an equity release transaction from the other market sector is less suitable, and the appropriateness of the transaction to the customer's needs, objectives and circumstances3, a firm must consider:

3
  1. (1)

    whether the customer's requirements meet the eligibility criteria for the equity release transaction 3(for example, the amount that the customer wishes to borrow or to release,3 the loan-to-value ratio, the age of the customer, the value of the property, as appropriate);3

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  2. (2)

    the customer's preferences for his estate (for example, whether the customer wishes to be certain of leaving a bequest to his family or others);

  3. (3)

    the customer's health and life expectancy;

  4. (4)

    the customer's future plans and needs (for example, whether the customer is likely to need to raise further funds or is likely to move house);

  5. (5)

    whether the customer has a preference or need for stability in the amount of payments (where payments are required) especially having regard to the impact on the customer of significant interest rate changes in the future; and

  6. (6)

    whether the customer has a preference or need for any other features of a an equity release transaction.3

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MCOB 8.5.9G

Where a firm sells only lifetime mortgages it is not required3 to assess the suitability of individual home reversion plans, and vice-versa. However, where a firm sells products from both market sectors, it should assess the suitability of all equity release transactions within its range.3

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3Suitability: affordability

MCOB 8.5.10R

In relation to MCOB 8.5.4 R(1)(c), a firm must explain to the customer that the assessment of whether he can afford to enter into a lifetime mortgage2 is based on:

2
  1. (1)

    current interest rates, which might rise in the future; and

  2. (2)

    the customer's current circumstances, which might change in the future.

MCOB 8.5.11R

In relation to whether the equity release transaction is affordable and appropriate to the customer's needs, objectives and circumstances3, where a firm makes a personal recommendation to a customer to enter intoan equity release transaction3 where a main purpose is to consolidate existing debts, it must also take account of the following, where relevant, in assessing whether the equity release transaction 3is suitable for the customer:

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  1. (1)

    the costs associated with increasing the period over which a debt is to be repaid;

  2. (2)

    whether it is appropriate for the customer to secure a previously unsecured loan; and

  3. (3)

    where the customer is known to have payment difficulties, whether it would be more appropriate for the customer to negotiate an arrangement with his creditors than to enter into an equity release transaction.3

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MCOB 8.5.12E
  1. (1)

    In assessing whether a customer can afford to enter into a particular equity release transaction3, a firm should give due regard to the following:

    3
    1. (a)

      information that the customer provides about his income and expenditure, and any other resources that he has available;

    2. (b)

      any likely change to the customer's income, expenditure or resources; and

    3. (c)

      the costs that the customer will be required to meet once any discount period in relation to the lifetime mortgage2 comes to an end (on the assumption that interest rates remain unchanged).

      2
  2. (2)

    Contravention of MCOB 8.5.12 E(1) may be relied upon as tending to show contravention of MCOB 8.5.4 R(1)(c).

MCOB 8.5.13G

A firm may generally rely on any information provided by the customer for the purposes of MCOB 8.5.4 R(1)(c) and (d) and MCOB 8.5.8 R(2) to MCOB 8.5.8 R(6) unless, taking a common-sense view of this information, it has reason to doubt it.

MCOB 8.5.14G

Different3 considerations apply when making a personal recommendation to a customer in arrears. For example, the circumstances of the customer may mean that, viewed as a new transaction, a customer could not be recommended to enter intoan equity release transaction3. In such cases, a firm will still be able to make a personal recommendation to that customer where this recommendation is, in the circumstances, a more suitable one than the customer's existing equity release transaction.3

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MCOB 8.5.15G

In complying with MCOB 8.5.4 R a firm is not required to consider whether it would be preferable for the customer to:

  1. (1)

    trade down (that is release funds by selling his existing property and purchasing a less expensive property) rather than enter into 3an equity release transaction;3

    3
  2. (2)

    rent a property, rather than purchase one or enter into an equity release transaction3 on his existing property; or

    3
  3. (3)

    delay entering intoan equity release transaction3 until a later date on the grounds that property prices would have changed in the intervening period, or that the interest rate in relation to a lifetime mortgage3 would be lower, or both.

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3Suitability: appropriate to the customer's needs, objectives and circumstances

MCOB 8.5.16G
  1. (1)

    MCOB 8.5.4 R(1)(d) does not require a firm to provide advice on investments. Whether such advice should be given will depend upon the individual needs and circumstances of the customer. Where considered relevant, MCOB 8 does not restrict the ability of an adviser to refer the customer to another source of investment advice (for example, where the adviser is not qualified to provide advice on investments).

  2. (2)

    Where the scope of the advice provided is based on a selection of equity release transactions from a single or limited number of providers,3 the assessment of suitability should not be limited to the equity release transactions3 which the firm offers.A firm cannot recommend3 the 'least worst' equity release transaction 3where the firm does not have access to products appropriate to the customer's needs and circumstances. This3 means, for example, that a firm dealing solely in the sub-prime market should not recommend one of these equity release transactions 3if approached for advice by a customer with an unblemished credit record.

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MCOB 8.5.16AG

3In assessing whether a home reversion plan is appropriate to the needs, objectives and circumstances of its customer, matters that a firm should take into account include:

  1. (1)

    the duration of the right to occupy the property; and

  2. (2)

    where an unauthorised reversion provider will provide the plan, the loss of those protections of the regulatory system that apply when a customer enters into a home reversion plan with an authorised reversion provider.

3Suitability: most suitable

MCOB 8.5.17E
  1. (1)

    A firm should, out of all the equity release transactions 3identified as being appropriate for that customer, recommend the one that is the least expensive for that customer taking into account those pricing elements identified by the customer as being most important to him.

    3
  2. (2)

    Compliance with (1) may be relied upon as tending to show compliance with MCOB 8.5.4 R(1)(e).

MCOB 8.5.18G
  1. (1)

    With regard to MCOB 8.5.17 E(1) different customers are likely to identify different pricing elements as being of most importance. For example, it may be the overall cost, a fixed or capped rate of interest, the inclusion of a 'no negative equity' guarantee, or the absence of early repayment charges that a customer considers most important.

  2. (2)

    A firm is not prevented3 from making a recommendation on grounds other than price. For example, it would be open to a firm to have regard to the speed or quality of service of different equity release providers3, the policies of equity release providers 3on further lending or capital repayments, the underwriting stance of equity release providers 3or the customer's wish for an equity release transaction3 that is compliant with Islamic3 law. The obligation to have reasonable grounds to conclude that the transaction is the most suitable3 remains the same in such cases.

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MCOB 8.5.19G
  1. (1)

    If circumstances arise in which a firm has reasonable grounds to conclude that there are several equity release transactions 3that would be suitable3, the firm may3 recommend only one of those equity release transactions.3

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  2. (2)

    If for any reason a customer rejects a recommendation made by a firm (for example, on the grounds that the equity release provider3 selected is unknown to him), the firm can make a further suitable 3recommendation where there remains an equity release transaction3 that is appropriate to the needs and circumstances of the customer.

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Rejected recommendations

MCOB 8.5.20R
  1. (1)

    If a customer has:

    1. (a)

      rejected all of the personal recommendations made by a firm and requested information instead on an equity release transaction3 that the firm does not consider suitable (and therefore could not recommend to the customer); and

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    2. (b)

      been issued with a new initial disclosure document or combined initial disclosure document;3

      3

    the firm may be able to provide information on that equity release transaction3 in the light of the information on which the personal recommendations in (1) were made.

    3
  2. (2)

    If the firm needs to ask further questions regarding the needs and circumstances of the customer to be able to provide information on that equity release transaction3, the firm must obtain that information by asking scripted questions (in accordance with the rules on non-advised sales3).

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MCOB 8.5.21G

A firm may consider it prudent to record any cases where, after all personal recommendations it has made to a customer have been rejected, it changes the nature of the service it provides and provides the customer with information about an equity release transaction.3

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Record keeping

MCOB 8.5.22R
  1. (1)

    A firm must make and retain a record:

    1. (a)

      of the customer information, including that relating to the customer's needs and circumstances, that it has obtained for the purposes of MCOB 8.5; and

    2. (b)

      that explains why the firm has concluded that any personal recommendation given in accordance with MCOB 8.5.2 R satisfies the suitability requirements in MCOB 8.5.4 R(1). This explanation must include, where this is the case, the reasons why a personal recommendation has been on a basis other than that described in MCOB 8.5.17 E(1).

  2. (2)

    The record in (1) must be retained for a minimum of three years from the date on which the personal recommendation was made.