Many financial advisers are not carrying out proper checks before recommending equity release products to clients, the Financial Services Authority has warned.

Mystery shoppers working for the FSA visited 20 UK financial advice firms posing as potential clients. The regulator found that more than 70 per cent of advisers are not gathering enough information about their customers before offering them advice on equity release.

The City watchdog also found that, once the lifetime mortgage has been sold, consumers are being advised to invest some of the equity released in products that are not suitable for their needs and may unnecessarily expose them to risk.

In addition, 60% of advisers did not explain the potential drawbacks of equity release.

Clive Briault, managing director of retail markets at the FSA, said: "Our work has found another disappointing instance of consumers being given poor quality advice. For example, some people releasing equity from their homes are being advised to borrow more than they need, and to invest these additional funds, which can be a high-risk strategy."

"What makes matters worse in this area is that these consumers tend to be elderly and vulnerable people who can ill-afford to be unnecessarily exposed to risk."

The FSA has not ruled out the use of its enforcement powers following the results of this work.

The Council of Mortgage Lenders said it was "disappointed" at the FSA findings but pointed out was obviously a very limited exercise and should not be taken to represent the activities within the equity release sector as a whole. "Nevertheless, consumers need to have confidence that the combination of regulation and good practice by firms is consistent in protecting their interests, and it is clear that more work is needed to ensure that good practice is universally applied," said the CML.