Qrops code warns against execution-only advice
Offshore adviser Montfort International has published a draft code of conduct for Qrops advice which warns advisers not to write Qrops business on an execution-only basis.
The voluntary code, published last week, sets out global guidance on how to give effective Qrops advice.
Montfort International managing director Geraint Davies estimates that the majority of qualifying recognised overseas pension schemes are sold without a full advice service.
He says: “I would not be surprised if 90 per cent of Qrops transfers done across 45 jurisdictions do not have adviser reports or suitability letters. This is complicated stuff and these are vital to getting it right, an execution-only transaction is not enough. We hope this code will inform clients of what to expect from advisers and help reduce that figure.”
The code, which is due to be finalised in August, sets out a process that takes advisers from initial client discussions to judging the suitability of a Qrops to conducting ongoing service after transfer.
The code says advisers should be qualified at the equivalent level of the CII’s G60, which has been superseded by the AF3, and know the provisions of HM Revenue & Customs Qrops regulations and how they interact with jurisdictional rules.
It says the amount and method of adviser remuneration should be made clear to clients and an advice report should be produced before any Qrops application is submitted.
The code says advisers’ fact-finds should allow advice to be delivered in terms of the pros and cons of moving to a Qrops.
It sets out 20 areas which should be included in advice, such as future plans related to residency, passport and visa issues, financial circumstances, risk assessment and past and future employment details.
’I would not be surprised if 90 per cent of Qrops transfers done across 45 jurisdictions do not have adviser reports or suitability letters’
The code says advisers must factor in the consequences of double-taxation agreements and their implications for the client and suggests that advisers recommend clients to take separate advice if they have any tax concerns.
The code says advisers working with clients in final-salary schemes should follow directions from the UK regulator and compare schemes with a Qrops on the grounds of annuity rate differentials, tax implications, death benefits and what the switch could mean for clients’ dependants.
It calls on advisers who sign up to the code to supply a copy to clients along with information to demonstrate how experienced the adviser and the firm is with international pensions.
The code warns that it does not list exhaustively what Qrops advisers should or should not do. Instead, it imposes an “overriding duty to act at all times in the lawful interests of the client”.
It does warn that advisers should not intimidate or manipulate clients into transferring to a Qrops, encourage them to lodge an application, use misleading statements or imply the schemes are backed by HMRC.
Davies says: “Few people know how to deliver advice in this area. Some advisers say ’you do not need to pay for advice, just move your fund overseas’.
“But it is so complicated that these clients need advice, whe-ther that is to move their money or keep it where it started. Clients need to understand what they have got or they could be walking into a tax timebomb.”
New Zealand Qrops provider Super Trustee Fund director Michael Reason says: “It is important that advisers get it right because if clients go into the wrong scheme, it is the member who could get hit with a 55 per cent charge.”