A taskforce has established a voluntary code of good practice for defined benefit transfer advice. Can it help repair damage to the industry caused by the British Steel pension crisis?
A gold standard is something the financial services industry turns to whenever there is a need to show that great service matters and is taken seriously. We have already become accustomed to chartered and certified financial planners representing the gold standard of financial advice.
Now, the Pensions Advice Taskforce, created by the Personal Finance Society with a range of representatives drawn from across the industry, including professional indemnity insurers, has developed a gold standard specifically for defined benefit transfer advice.
Consumer confidence and adviser access to PI insurance have both suffered in the aftermath of the British Steel DB transfer crisis, so there is clearly a need to address this. The taskforce believes the success of the Pension Transfer Gold Standard will depend on how it helps consumers understand what is involved in the pension transfer advice process, “what good looks like” and where to find it, rather than simply being “another advice standard”.
PFS chief executive Keith Richards says: “In an often-cynical marketplace, perpetuated by a minority who can impact the perception and reputation of the majority, the Pension Transfer Gold Standard is about raising consumer awareness and redressing the knowledge imbalance between firms giving advice and consumers seeking and taking it, especially those who are mandated through pension freedoms.”
But is the code likely to make much of a difference?
So far, more than 200 advice firms have signed up to the Pension Transfer Gold Standard and it has been well-received by the industry.
Royal London director of policy Steve Webb, who was involved in developing the code, says: “Given the damage done to the reputation of the advice profession by a combination of unregulated introducers and rogue advisers in the British Steel case, any initiative which seeks to drive up standards and improve the reputation of the profession has to be welcomed.”
As a founder member of the taskforce, LEBC Group is also a keen supporter of the initiative.
Director of public policy Kay Ingram says: “Advice on pension transfers is a complex area and the decisions which consumers need to make have the potential to transform their lives for the better and for the worse. It is therefore essential that this work is undertaken only by those who will act with the highest level of integrity and will put the interests of the client above all other considerations.”
Some commentators believe that since advisers who provide DB transfer advice will have their own clear ideas of what good looks like, they will not need the PFS code to help them. However, Intelligent Pensions technical director Fiona Tait says there are very few instances where an industry group has got together to agree a set of common standards, rather than waiting for the regulator to dictate to them.
“I can’t speak for all advice firms, but we certainly think it’s a good idea. The regulator is constantly looking for instances where the industry is proactively policing itself and pension transfers are a high-risk area which should only be facilitated by firms with the highest professional standards,” she says.
Tait adds that the sign-up process is extremely simple and would expect firms who are currently delivering transfer advice to be able to comply with the principles with minimal adjustments to their current processes.
As someone who is actively involved in the provision of DB transfer advice, Insight.Out Financial managing director Jayne Gibson is interested in finding out more about the code. “It is still early days, but I am sure many other advisers will take a serious look at the proposals and consider how they could enhance a client’s experience of financial planning in this complex area,” she says.
No single fix
Helping to inform and educate consumers so they can better understand what good DB transfer advice looks like is at the heart of the Gold Standard, and that can only be a positive thing if it enables them to access high-quality advice.
It is also hoped that the Gold Standard will bring the advice sector a step closer to restoring consumer confidence by showing it is behaving in the right way and taking its responsibilities towards people seriously. However, some commentators believe it will take more than this to rebuild the public’s trust in the sector.
“My thoughts are that the Gold Standard is focused on helping consumers understand the advice process and what constitutes best practice, rather than the regulatory obligations a firm is required to adhere to,” says Gibson.
“Providing consumers with best-practice guidance rather than just the basic rule can help with their preparedness for the choices ahead of them. But in terms of building consumer confidence, I do not believe that one campaign in isolation can achieve this.
“The whole adviser community has a responsibility and a part to play. It is up to us to do our bit by working hard on building and promoting our profession.”
In Tait’s view, the principles can help to manage consumer expectations but, more importantly, they demonstrate the professional nature of the service.
“Consumers may not know what the principles mean but at the very least, they can see that firms have gone above and beyond the minimum regulatory requirements,” Tait says. “Ultimately, the restoration of trust will not come down to a single fix, but this is certainly a step in the right direction.
“My only concern is that firms must not only sign up to the principles but must be seen to be adhering to them, and if they are not, they should not be able to keep the logo.”
Selectapension director Peter Bradshaw says that as it is not clear what sanctions, if any, the PFS will impose against firms which adopt the code but do not follow it, he does not see it having any “teeth”. However, he believes the provision of information and a potential “triage” facility have got to be good starting points.
One of the requirements of the new code is that advice firms have PI insurance that meets the FCA threshold, and the PFS anticipates adoption of the Gold Standard by businesses will be viewed positively by the PI market.
This is a key point for advisers, since obtaining PI cover at a cost which is not prohibitive will determine whether their firm remains in the DB transfer market or withdraws from it, thereby reducing the pool of advisers who can help consumers in this specialist area of advice.
Commentators hope the PFS is right but accept there are no guarantees at this stage.
“I welcome all efforts to educate consumers and raise the profile of advice. Whether this has any impact on the PI market, I am not so sure,” says Gibson. “It would be good to see some interaction between the FCA and PI insurers, as currently the cost of PI is becoming a massive barrier to trade, and therefore for consumers to have access to high-quality advice.”
Ingram hopes signing up to the Gold Standard would make it easier for firms to find future PI cover.
“Having established processes and several checks and balances around the formulation of advice is a key requirement to ensuring that all aspects of the client’s circumstances have been thoroughly explored and explained as part of the advice process,” she says.
Despite giving an indication of what good looks like, commentators do not expect adherence to the code to carry any weight where pension transfer advice given is called into question, such as where a complaint is made to the Financial Ombudsman Service.
“The FOS would be more concerned to judge on the documented suitability of advice instead of checking on adherence to the code of practice,” says Bradshaw.
Gibson agrees. “The focus of FOS is consumer protection – they are looking at the circumstances in a particular case, so what actually happened rather than what should have happened,” she says.
“The Gold Standard is only a part of the systems and controls that should be in place for a business, so it is difficult to see how the FOS could make any comment on how adopting this would impact on a complaint.”
There can’t be any downside in having a standard to sign up to, aspire to and adhere to – why wouldn’t you subscribe?
But I don’t think it will cut much mustard with enough PI insurers – or, in fact, the FOS – because advice is either suitable or not suitable. If the FOS received a complaint, I don’t think it would move to a position where a firm with a Gold Standard would be given a lighter touch.
To be honest, I don’t think it’s so much about consumers having confidence, but more to do with advice firms maybe having confidence in the market, and, candidly, whether or not to abstain. There is going to be a relatively significant exodus in terms of those firms offering DB transfer advice because PI premiums are prohibitively expensive or the excess applied is prohibitive.