The scramble to do as many defined benefit transfers as possible while values remain high is unabated, and I am constantly amazed at how some firms have thrown caution to the wind in the hunt for their share of this – admittedly lucrative – opportunity.
The problem is that advisers are putting their profits before the client’s best interests. Despite clear guidance from the FCA that the default position should be that transfers are unsuitable, they are becoming the norm.
We all know where we are heading: indeed, if we do not find ourselves in a misselling crisis on the scale of PPI within 10 years, I will eat my hat.
Pension transfers should be signed off by a specialist with G60 or equivalent but I have heard of firms where even the most junior advisers are merrily recommending them where there are very good reasons why they should not.
It is a bit like Joe Kennedy avoiding the stockmarket crash back in 1929: he knew it was time to get out when the shoeshine boy started giving him investment tips. Everyone is suddenly an expert and has jumped on the DB gravy train. Frankly, that makes me all the more inclined to withdraw from the work entirely.
Before there is a furore about hypocrisy, let me be clear. We have done our share and our bottom line has certainly benefited from advising DB scheme members.
However, we have set out three strict parameters for every member of our advice team.
Firstly, they must follow a clear procedure to ascertain suitability, with a full exploration of the client and the scheme using cashflow modelling to support the advice, and a proper analysis of the investment outcomes for the transferred pot. Secondly, our approval process is stringent and includes sign-off by a qualified pension transfer specialist. Thirdly, we charge a fee irrespective of the outcome. So no contingent charging.
It is contingent charging above all else that puts the advice sector in jeopardy. How can you prove your advice is completely unbiased if the only way you will cover your costs is to recommend a transfer?
The FCA has an opportunity to protect the advice sector from self-harm by outlawing contingent charging for this type of work. However, it has done no more than to state it is a higher risk approach and that firms must have the necessary controls in place to manage that risk and any potential conflict of interest.
Some firms have withdrawn DB transfer advice from their proposition but the damage may already be done, and there are still many out there offering the service.
Yes, there are cases where a transfer is absolutely right for the client, but we have reached a stage where we hardly dare advise to go ahead in case it comes back to bite us later.
The majority of us will do the work to provide suitable advice but when the tsunami of misselling comes, we will get swept along with the rest.
Unless we are given greater clarity to protect our advice processes from future claims, I can see many more firms backing away.
That said, if the careful advisers withdraw from this area of advice, all those DB scheme members considering a transfer will find themselves advised by the less cautious. Then everyone loses.
Carl Lamb is managing director of Almary Green