Financial planners are missing out on a multi-billion-dollar opportunity, with the Australian reverse mortgage sector growing over 7 per cent in the last year and few advisers recommending equity-release products to retiring baby boomers.
According to the Deloitte Actuaries and Consultants’ Australian Reverse Mortgage Survey, commissioned by the Senior Australians Equity Release Association (SEQUAL), more than 42,000 senior households had a reverse mortgage, representing approximately $3.5 billion, as at December 31, 2012.
However, opportunities in the equity release market are being overlooked by financial services providers, despite the “clear potential for even greater growth” given Australia’s senior population is set to more than double in the next decade, said Deloitte financial services partner, James Hickey.
“Equity-release products should be on the radar of any financial services organisation with ageing members, including the large superannuation funds,” he said.
“Contrary to perception, we are seeing significant interest in the product from active retirees in their 60s and early 70s. These are senior Australians who want to travel and renovate their homes, as well as settle debts and enjoy their new-found freedom without having to significantly tap into their superannuation or downsize their homes. These active seniors are finding real benefits in the flexibility offered by reverse mortgages.”
Hickey acknowledged that financial planners were inhibited by regulation, which required them to be authorised credit representatives to write reverse mortgages, despite the fact they were an ideal fit.
“These products are fundamentally post-retirement solutions, so financial planners should seek to have a knowledge of them in the same way they understand annuities and allocated pensions,” he said.
Hickey cited two key factors preventing more advisers from recommending equity release products. Firstly, many of the lenders who pioneered the space and actively serviced the intermediary market, such as Bluestone Group, Macquarie Bank, ABN Amro and Over Fifty Group, had pulled out following the global financial crisis. As a result, those who remained, namely St George, Commonwealth Bank of Australia and Bankwest, promote the solution through their inhouse bankers and credit specialists. Secondly, financial planners have been consumed by legislative changes rather than expanding their value propositions.
“Many dealer groups and advisers had investigated reverse mortgages and placed non-bank lenders on their approved product lists pre-GFC, but since then they’ve had a few other things on their mind,” Hickey said.
“Before the GFC, almost half of new business was coming through intermediated channels, namely financial advisers and mortgage brokers, but equity release products are niche and will struggle to gain awareness.”
