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How should advisers cope with surge in DB transfer enquiries?

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Advisers are being urged to consider triage systems and a comprehensive approach to outsourcing to handle the surge in defined benefit transfer enquiries.

There is a mismatch between the number of clients wanting to access DB pension funds and the number of advisers prepared to offer advice, or facilitate such transfers.

Since the pension freedoms were introduced, there has been a sharp increase in the number of people looking to transfer out of DB schemes.

This trend has been exacerbated by the fact that transfer values have risen significantly in many cases due  to falling gilt yields.

For many people the lure of a large pot of money can outweigh the longer-term benefits of an index-linked guaranteed income.

But advisers are cautious about advising on DB transfers. To start with it is estimated that only a third of advisers have the necessary qualifications.

Those that are qualified are concerned about breaching FCA guidance, which could potentially leave them open to misselling claims if the client later decides this was not the best course of action.

The FCA rules are clear; advisers should start with the assumption that a DB transfer is unlikely to be in a client’s best interests, and transfers should only be recommended where there is clear evidence it is in the client’s interest.

There are concerns this heavy regulatory workload, and subsequent high fees, are creating particular problems for those with smaller DB pots.

At the initial stage, it is not about identifying which clients should transfer, but who definitely should not

CTC managing director Nigel Chambers says: “It’s not surprising that qualified advisers are concentrating on those who have pensions with transfer values of £250,000 or more. However, the regulations stipulate that anyone with a DB transfer value of £30,000 or more needs to get advice before they can access this money.”

Chambers points out the real advice gap is for those with pension pots worth between £30,000 and £60,000. He says: “At these levels it isn’t really cost-effective to pay an upfront fee running into several thousands of pounds, particularly if the advice is likely to be stick with what you’ve got.”

One solution to this problem may be a pre-advice triage system, which may help manage this demand more efficiently.

Standard Life has championed such an approach. Head of financial planning and proposition Alastair Black says: “Our research with advisers has shown there has been a massive increase in the number of people seeking advice about transferring out of DB pensions.

“However, in the majority of these cases the final recommendation is not to transfer.

“There are a significant minority of cases when a transfer may be the right course of action, and these clients may benefit from exploring these issues in more depth. But a lot of people are going through this time-consuming and costly advice process for no benefit.”

pension transfer enquiries graph

He argues an initial triage system should help weed out these cases from the outset, saving clients money, and helping advisers target their efforts on those most likely to benefit from a transfer.

Black says: “At the initial stage it’s not about identifying which clients should transfer; it’s about identifying those who definitely should not.”

Chambers says to keep costs down, the only realistic option is using some form of online questionnaire or robo-advice as a screen.

Black says this process should focus on a number of key areas, but the most important is whether the client understands what they are giving up by transferring out of a DB scheme.

He says: “Asking blunt questions, such as what don’t you like about guaranteed income, can quickly identify those for whom this is not an appropriate course of action.”

Standard Life says it is working with advisers about introducing questions which would “build on existing advisory processes, not replace them”.

Intelligent Pensions  head of pathways Andrew Pennie says: “This pre-vetting process could be successful. We need to look at better ways to educate people about the risks and implications of transferring out of DB schemes.

“Many have simply heard colleagues talk about large transfer values and they assume this is the best course of action. They don’t realise the value of what they are giving up. If this could be clearer from the outset this could help save advisers time and clients money.”

Ongoing, outsourcing

Given this increased demand for DB transfer advice, some advisers are opting to outsource such decisions to specialist firms that have the necessary qualifications.

But even some of these specialist firms are warning advisers this is not a silver bullet when it comes to protecting themselves against future misselling claims.

Investment Quorum director of private clients and pension transfer specialist Petronella West says: “This is a complex area, and it’s about more than having just the requisite qualifications.

“People need the relevant experience when it comes to advising clients.”

West says other clients will refer pension transfer requests to them, but they do not outsource this business on behalf of others. If the company does recommend a transfer, then it will also advise on investment options within a defined contribution environment.

If advisers are outsourcing these decisions purely to avoid liability, this is not going to work that well

West adds: “We make it clear at the outset that the client has to pay a fee in the region of £6,000. This is payable whether or not we recommend a transfer.”

Pennie also takes on pension transfer requests from other firms. But like Investment Quorum he says if it supports a pension transfer, then it will provide ongoing investment advice. He says: “We feel this is best practice. We want to ensure we have an ongoing relationship with this client.”

But this is not always the case.  Syndaxi Chartered Financial Planners managing director Robert Reid says he is concerned about the number of advisers who seem to be outsourcing this pension decision, but then continue to advise clients on their investments.

He says: “There is a lot of naivety around such decisions. Many of these advisers weren’t around in 1994 in the last major pension mis-selling scandal. They would be a lot more cautious if they were.

“If advisers are outsourcing these decisions purely to avoid this liability, then I would politely suggest this isn’t going to work that well.”

A fight with the FCA

The FCA has said such decisions should not be made “in isolation” and those advising on pension transfers should take into account any investment advice given by a third party. But it has not specifically ruled out such arrangements.

This outsourcing is particularly problematic if there is some fee-sharing arrangement between the two companies.

Reid says: “There seems to be a real conflict of interest here. If there is a complaint at a later stage, then I would expect the client – or the client’s family – would be able to pursue complaints against both firms.

“If the outsourcing specialist goes under, where are they going to take this complaint? Probably to the firm that continues to manage their pension money, and has benefited financially from the decision to leave the DB scheme.”

Those who do not have the required qualifications cannot help those who come to them wanting to transfer from DB schemes.

But before they outsource this business, or recommend a specialist firm, Reid says it is important they do sufficient due diligence.

He says: “Advisers need to ask themselves how robust the firm’s processes are. But many are not really in a position to assess this properly, lacking the required qualifications themselves.”

The insistent client hold-up

Allied to this outsourcing issue is the question of what advisers should do with insistent clients.

Pennie says: “If our recommendation is not to transfer we will not facilitate this business. We may look again at the advice process – either the client has not understood us, or we may not have understood
his aims.

“But if we have not recommended this course of action we do not think it is the right thing to do.”

However, other advisers will facilitate this business, provided they have followed the guidance set out by the FCA on insistent clients. This stipulates the advisers must clearly set out his recommendations and the risks the client faces in not following this advice.

Reid says: “Again there is a complacency that this means they won’t be liable for future claims. If the person they are dealing with is an experienced investor, perhaps a financial director, then this may be the case. But if it’s a normal individual I suggest this won’t work. You may have warned them not to stick their hands in an open fire.

“If they say they don’t care about getting burned, and you say, fine, and then shove their hands in the fire, then the regulator may decide you also bear some responsibility for the consequences.”



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The FCA is planning changes to the way redress should be calculated for those who have received unsuitable advice to transfer out of defined benefit pension. The regulator announced its intention to consult in August , and asked PwC to carry out a review of the existing method of working out redress and provide recommendations. […]


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. What a stupid analogy, “sticking their hands in a fire” is nothing like transferring a pension when you have recommended not to. People have many various reasons they might want to transfer when it isn’t clearly in their long term benefit to do so. Often it is marginal if a transfer is going to be beneficial or not, in these cases an adviser would probably recommend against it, but the client may consider the possible upsides outweigh the risk. As long as the client is aware of and understands the risks, surely they have the right to choose for themselves? After all that is why the government introduced pension freedoms at the end of the day!

  2. There are suggestions in the article to firms being potentially liable for pension transfer advice when acting as an introducer, as well as the actions of clients acting against advice (ie insistent clients).

    I’m aware of isolated FOS cases where the firm has not followed a proper insistent client process and been held liable, but I’m not aware of any cases where an introducing firm has been held liable for another firm’s advice because the advisory firm is no longer trading. If the regulator did take this stance, it would appear to have much wider implications across the industry beyond pension transfer activity?

  3. “There are a significant minority of cases when a transfer may be the right course of action” so say the mighty Standard Life. Is £85 billion in the last 12 months alone a minority?

    CETVs at up to 60 times prerved pension. Flexible income, income tax planning opportunties, inheritance planning, access some/all pension before the ‘normal pension age’ to become debt free etc etc.

    Many happy to give up employer promoised pensions for wealth/capital/flexibility. £85 billion moved out of DB in last year alone. One survey suggests 30% of the £800 billion in DB arena will move to DC.

    Yet, TPR, FCA, Money Advice and many insurers have not upgarded their thinking to keep up with the times and freedoms and client demands resulting after April 2015.

    Any decision needs careful analysis and cash flow modelling. Very different approiach rtequired to flogging investments and financial products. Many won’t upskill or spend the time required on each client.

  4. Pension Freedoms, low gilt yields and a high divorce rate have changed the landscape completely for DB Transfers. There are now more reasons than ever why it would be in a client’s best interests to transfer.

    The FCA guidance is out of date; every client should be approached with an open mind, not with an assumption that something is automatically going to be wrong for them!

    I can partly understand why some Advisers that are qualified to carry out DB transfers choose not to, especially if they have had their fingers burnt in the past with other ‘mis-selling’ scandals.

    This whole issue comes down to managing risk.

    Facilitating transfers for insistent clients against your advice? A huge risk that some are taking.

    Turning away new clients who you don’t have an existing relationship? Fully understandable and no real risk at all in doing that.

    But if Advisers have existing, long-standing clients with final salary pensions, not doing anything with these could be just as big a risk to the business as transferring.

  5. Christine Brightwell 31st March 2017 at 2:03 pm

    I do have concerns about this whole issue. From my perspective as a trustee, I have seem an alarming number of requests for transfer information advised by individuals who are given the information requested and them continue to request for it several times more as they simply have not read what they have received. Then the adviser not understanding that CETV can be reduced on the basis of an insufficiency report reflecting underfunding – and not understanding that there is no statutory right to a CETV in the last year before NRD – I could go on. The advisers have to appropriate registrations – I always check. I am just left sighing and reaching for another cup of coffee

    • Christine

      I have been waiting for one scheme administrator to provide information about CETV calculation methodology since 17th January. Certainly not information they have previously provided which I somehow failed to read.

      The standard of administration from many OPS administrators is very very poor indeed.

      They have even told me they don’t have information that The Pensions Regulator rules require them to have.

      It seems that both advisers and schemes are at fault here

  6. If the quality of information that pension trustees issued was standardised and also delivered in a reasonable amount of time there would tend to be less of a problem. Surely, some form of industry standard method of issuing the information would feed into the points made in this article, such that TVAS reports can be generated with little or no error.

  7. Terry Mullender 1st April 2017 at 9:36 am

    A crystal ball would be nice to have.

    Ten years into the future how many DC pension pots that have received a DB CETV will be depleted?

    How many sponsoring employers of DB schemes will have gone into administration?

    At what point will revaluation and escalation of DB schemes be reduced (this is inevitable) to stop the sponsoring employer going bust?

    How many people will regret transferring out of a DB scheme, and equally how many will regret remaining within a DB scheme where their pension benefits are reduced, or have been passed into the PPF?

    If you have said crystal ball, will you pass it to me please? Thanks.

    Will (or perhaps when) will the PPF benefits have to be reduced?

  8. Walk away from it. Even if you stick to the FCA guidance, if a complaint comes in, you’re highly likely to lose it. Damaged reputation and big redress bill are inevitable.

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