Carl Lamb: Why advisers should say ‘no’ to insistent pension transfers

Pension flexibility is almost upon us and many IFAs are rubbing their hands with glee about the opportunities for the advice sector


Pension flexibility is almost upon us and many IFAs are rubbing their hands with glee about the opportunities for the advice sector. However, it is not all good news and those of us who have real concerns about our clients’ long-term financial sustainability are pulling hard on the reins, trying to bring some control back into the process.

My challenge to the advice industry is this: are we advisers or are we order takers? If we are advisers, then it is our duty to make sure clients act in their best interests. That means somehow putting the brakes on a spending free-for-all and persuading clients to think carefully about sustainable income.

It seems to me there are real misconceptions about pension savings. What the industry needs to make clear to the public is that a pension fund is an investment fund: it can be managed in terms of growth and risk just like any other investment and retirement does not have to trigger wholesale action.  The old mindset of “I’m retiring so I need to spend my pension fund” no longer holds true. The real benefit of pension flexibility is just that: the pension can now be more easily managed to provide varying income needs throughout retirement. 

However, it is a sad fact that flexibility is going to bring as many problems as it does solutions. For every client that uses the new rules sensibly, there are going to be others that will see their pension fund as a bank account to do as they wish with. Many will buy the sports car or take a world cruise on the basis of living for today, never mind about tomorrow.

The bottom line is that for all except those with very small pension pots, advice will be absolutely essential – and I mean advice, not “guidance”. Sources of help and support are looking increasingly limited. For example, we have heard of one local major provider that has backtracked on plans to build a 30-strong second line team to offer direct client support on pension access, presumably as a result of the additional criteria imposed by the regulator. Guidance providers like Citizens Advice will do their best of course but they will not be qualified and – importantly – they will not be regulated, so who knows what outcomes they will deliver.

Our stance is clear. We are advisers and, to do our job properly, we must take our clients through a fully advised process. That means we do not do “insistent clients”; we do not do execution only. If a client wants to go it alone they will do so without us. This not only protects our clients but us as well.

The advice sector has worked hard over the past few years to be seen as a professional group with high ethics and transparent processes. There is a huge reputational risk to the industry looming with pension flexibility and I am certain we are facing horror stories and misselling claims as those who have failed to plan for the longer term find themselves with no pension fund left.  The best IFAs will not be afraid to put their heads above the parapet and say “no” to clients who will not listen to advice.

Carl Lamb is managing director of Almary Green


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There are 20 comments at the moment, we would love to hear your opinion too.

  1. I think it would be helpful if we started to make some distinctions here. We have some outdated notions about how people should spend their life savings – and I am not talking about buying ferraris. This isn’t about being an order taker- this is about us trying to help a consumer achieve their objectives- with their own money. So shouldnt we focus on that. I don’t need income but I would like to help my children get on the housing ladder- what is there about being an order taker? Why do we think we can’t help them? Shouldn’t we be reevaluating our outdated notions of what is acceptable or not and start actively trying to look for more innovative solutions to problems. This isn’t advisors rubbing their hands in glee- although there is no doubt this is a massive opportunity for the advice industry. I can think of loads of worthwhile options to discuss in these circumstances. So shouldn’t we stop moaning about liability and what we should or shouldn’t be doing coz we are scared of the Regulator and instead spend out time learning about the new options, get some new material to help customers understand their options best and start putting the customer first and delivering solutions that will help them achieve their aims best- it is their money.

  2. I am with you Jane. A pension fund is no longer an income product – it’s an ISA with tax to pay on 75% of the withdrawals!

    And there is no shame in a client spending their ISA in retirement – so why their pension?

  3. I’m with Jane on this – is there any difference between paying £200 per rmonth into an ISA and then reversing that and drawing an income stream to fund ‘retirement’ compared to doing precisely the same but using a pension instead.

    Yet the latter involves a whole host of compliance whereas the former doesn’t e.g. we don’t consider purchase life annuities simply because we’ve set up income from an ISA.

    i’ve been saying this for months – this notion of ‘retirement’ is broadly irrelevant when it comes to pensions etc. People need to step back and look at the big picture and compliance needs to evolve in order to ensure we focus on consumer needs.

    DB to DC is a major issue, granted, but taking UFPLS or TFC and no income should potentilly be seen as client needs driven ‘admin’ not regulated ‘sales’.

  4. I do agree with Carl, the problem is as I have pointed out time and time again, it will not be the advisers recommending it, or arranging it. It will be those who take pension guidance from the bodies with advice in their names MAS, TPAS that think they are getting advice. To the average consumer if your name has adviser in it, you are providing advice, they do not understand the difference.

    When the complaints start flying and they will, it will be that word, advice that will point the finger incorrectly are the advisers.

  5. Call a spade... 24th March 2015 at 2:52 pm

    “For every client that uses the new rules sensibly, there are going to be others that will see their pension fund as a bank account to do as they wish with.”
    A trifle arrogant, perhaps? Who is to say what is sensible? Why shouldn’t people do as they wish with their pension fund – which is their money? If someone wants to spend their pension fund on a world cruise and live the rest of their days on a state pension, that is their business. Undoubtedly there will be complaints over “advice” issues, but that is no reason to take a blinkered view of what is “sensible” or lay down the law on what people should or shouldn’t do. I agree with Jane – it’s time to focus on what customers want today, not on what yesterday’s rules said they ought to have.

  6. This debate is set to continue for an age, and rightly so, but the first building block for any advice should be ‘would I recommend this process/ product/ procedure to my own mother?’ It has served me well for over 25 years, and as a consequence, my clients. If it is right, then recommend it, document it and implement it. If it is not right, then thank the client, explain your position and rationale for reaching your decision, and politely close the meeting. Whether you charge for the advice is for you to decide, but let’s not forget why we are in this profession – to give advice which is most suitable to a client’s current and future requirements – and that doesn’t always have to be what the client thinks he/she wants.

    The days of being paid when a product is sold are rightly over. The value of advice needs to be explained to people and the ‘cost’ of receiving the wrong advice equally illustrated to them. Only then will people start to understand that we are qualified professionals, and begin to value the advice for which they are paying.

  7. Along with other comments, I agree with Jane. There are too many patronising stereotypes prevailing re how people might spend their savings. However, beware “the customer knows best”. As Akio Morita, Sony’s founder proclaimed, “the public doesn’t know what is possible, but we do”. The job is to advise on how best to achieve their objectives, applying appropriate experience and wisdom to do so. That might involve some ‘tough love”. On the other hand, to simply dispense with the insistent client might be regarded as professional cowardice – playing safe re business risk, versus working hard to explain any potential catastrophes, and persuade otherwise. The advisers who possess an appropriate degree of ‘creative assertiveness’ will help the errant client understand the ramifications of their proposed actions. Others with less persuasive ability will either ditch the client (bad) or acquiesce (worse).

    Incidentally, re transfers (in the headline but can’t see the reference in Carl’s article), as I understand it, most if not all providers will refuse to get involved in transfers that are not intermediated. Consequently there is a risk that clients who really could be better served by transferring, find they are denied the opportunity.

  8. I have to agree with Karl.

    Ever since the announcement I have had a number of queries from clients and heard comments in general conversation about pension freedom.

    My reply to their queries when I have been asked is to use the idiom “be careful what you wish for ”
    How many people have read the about pension freedom and yes thought that helping their children on the property ladder or out of a spot of trouble is an aspirational goal they can now be achived today but might not realise all the negative consequences that could accompany obtaining that wish today.
    on their own lives in the year ahead

    I have already been approached by someone who has was told by their pension provider to seek advice. After having a meeting for an hour it became apparent that it was a quick fix solution to a problem that I was not prepared to assist him and I told him so.

    He may not like the advice but that is what been professional is all about.

    It reminds me of a conversation I had with the surgeon in respect of a trapped nerve I had in my back. The surgeon was quite blunt and said yes I can do the operation there is a 75% chance that it may not be a success.The only recommendation I can make is that you are more careful with your back and suggest you consider you do light exercise.

    Yes I could have insisted he go ahead with the operation.

    I respected his professional integrity and honesty

    May be that is what Karl is referring to we will only been seen as professional if we are prepared to say no instead of pandering to its mine money can do what I like.

    You can have all the options in the world but are client prepared to take the risk

  9. Paul, charming homily aside, what is right for your Mother, who may have a completely different requirements, needs and attitudes from anyone else, may not suit your client.

    There does seem to be a prevailing notion expressed in many comments on columns like these, that advice is what gives the adviser regulatory comfort. Advisers’ own risk/product/investment biases have to be left at home when they leave for the office.

    That is the mark of professional financial advice.

  10. There would appear to be 2 distinct schools of thought here re the “freedoms”. I would say that as long as someone has the necessary income stream to cover their essential day to day bills and living expenses, then they are free to do what they want with their “pension monies”.
    There would be little point in spending every penny and then having no or insufficient money to cover living costs going forward. That would be a recipe for disaster. I suspect that`s what a lot of posters on here are attempting to get across.

  11. We are having arguments and counter arguments about the rights of the consumer to spend their on money as they wish, and the rights of the advisers to refuse to transact what they perceive to be high risk business. Essentially, both camps are right, but we only have one approved system, which does not allow any latitude on the part of the adviser, unless they are prepared to meet subsequent claims for negligent advice from some people that may not ordinarily have been accepted as clients.

    As commented before, there needs to be a distribution channel which allows consumers to do what they want without liability, and advisers who do not feel comfortable sanctioning a reckless course of action should be free to decline the business. If a Pension Transfer Specialist is unable to recommend a transfer it is because all of the facts have been considered and a case for transfer has not been established. If we do not adhere to the FCA rules we get our licence taken away and open ourselves up to future claims, why on earth should we do that for someone we have never met before?

    I am more than happy for a group of like minded liberal IFAs to provide a conduit for insistent customers, as long as all compensation claim levies are limited to that group. Like many others, I have been around long enough to know that the majority pick up the tab for the actions of the few.

    So in summary, yes, educate consumers and trust people to spend their own money wisely, let IFAs decide what sort of business they wish to transact, but at the end of it all the liability should be confined to those who transact insistent customer business, not the whole advisory community.

  12. “Following a recent meeting with the Financial Ombudsman Service, they confirmed that in the event of a complaint, their general position is that a consumer cannot reasonably be expected to understand the complexity and associated risks, unless of course they have equal or greater knowledge than the adviser. They have also made it clear that obtaining an ‘insistent client’ declaration and documenting the risk warnings in a suitability report, will not generally protect advisers against future liability in the event of a claim.”

    There we have it in black and white. Clients can’t be expected to understand…… oh. but yes they can and won’t they love being told already this ‘pension freedom’ they thought they had was simply a myth.
    The FOS are now Judge, Jury and Executioner.

  13. The Mental Capacity Act states (taken from Wikipedia).

    ” 1. A person must be assumed to have capacity unless it is established that he/she lacks capacity.

    2. A person is not to be treated as unable to make a decision unless all practicable steps to help him/her to do so have been taken without success.

    3. A person is not to be treated as unable to make a decision merely because he/she makes an unwise decision.”
    How does this fit in with the FOS view?

  14. Here’s an interesting thought. In last week’s budget it was announced that there would be a consultation on selling annuities already in payment. However, the FCA has recently re-iterated their belief that a transfer out of a DB scheme is bad advice.

    Does this mean, therefore, that the FCA think that the UK Govt/Treasury’s idea of selling annuities would be bad advice because surely they are one and the same, the giving up of a guaranteed income stream for a lump sum.

    Surely the natural next step to this is there should be a consultation on the selling a DB benefit in payment?

    It all smacks of a lack of joined up thinking.

  15. The FOS guidance does not stop consumers exercising their rights, as long as they find someone to carry out the transaction for them without fear of litigation at a later date.

    As far as advisers are concerned, this is now a PI issue, as any firm allowing insistent customer transactions is a risk against the insurer, and therefore unlikely to obtain cover, it would be an open cheque book given the FOS stance.

    So for all the good intentions of some commentators and the campaign for freedom to take responsibility for ones’ own actions, the regulatory structure does not support this view, and it is time to stop criticising advisers who are taking a commonsense approach by protecting both themselves and the consumer, which is the ambition of the FCA.

    Political aspirations have been allowed to create confusion in a tightly regulated marketplace, perhaps further legislation is required to exempt the advisory community from any liability if they carry out the wishes of the Chancellor to provide pensions freedom for all.

    In the meantime, damned if we do, damned if we do not, and the arguments will continue.

  16. Brilliant incite from Nelly. If someone has an LPA on a clients pension, can a pension provider legally refuse it?
    Liability for an advisory firm is the issue with FOS and until they know for sure what the FOS will do (interesting post on FOS position on insistent clients) it will be refusal of PI insurers to cover the risk which limits firms ability to do anything from April due to PI potential exclusions.
    Logically if a pension is just deferred pay from a tax perspective, whilst we can advise against and decline to intermediate, I don’t see how a provider can refuse a consumers request from April, even if we all think it stupid. I think gambling is stupid, but I can’t stop my clients from doing the lottery with their pay, so why is it different with their pension?

  17. @Geoff Sharpe – It looks like you and I both came to the same conclusion last night, i.e. it doesn’t matter what the Govt, FCA or advisers think, it will be what the PI insurers will or will NOT cover which will become the decider. AS such, the FCA and Govt have 2 weeks to find that out with the various PI insurers before the proverbial hits the fan. For my firm, that is almost perfect timing as our PI renews on 11th April. If my PI will not cover advising on pension freedoms from April, then by default, my provision of advice will become “restricted” as there will be things I can no longer do even if I and the Govt think they are right as the FOS may think othewrwise and hence the PI may not cover it.
    If my ability to remain Independent is “restricted” by this policy, then that could be a breach of my human rights…..
    worm can of – rearrange the words.
    I said all along that Pension Freedoms without a consultation first was like opening Pandoras box, when all that was needed was a combination of an increase in the Triviality limits and decrease in the Flexible Drawdown limits to say £15k secure income from the £20k original figure. Now we have a complete mess, 2 weeks to go, no clear ability to even advise without risking being put out of business and an election round the corner which will probably re-arrange the deck chairs again.

  18. Here is an interesting one for you. Customer -(not client) who had over £18k in a PPP, but under 40k who wanted to take it all out. Not a client as no ongoing advice and he was clear what he wanted. Pre pension freedoms so we arranged a Living Time plan which matures with an ability to purchase an annuity or remain in drawdown. Understandably he now does not want to purchase an annuity, nor pay for ongoing investment advice required under drawdown so wants to use the new flexible rules from April. I KNOW my customer, so FCA rules met, but FOS are implying and so are PFS I cannot facilitate and unlikely my PI insurers will cover me to implement want he wants, so what do I say? Go speak to Penswiowise (I already got him to speak to MAS) and when Pensionwise send him back to me for advice and I say I can’t advise because of PI and I cant implement because of FOS/PII issues, what will he then do? I suspect he will go speak to Mr Farrage as he is the prospective MP for South Thanet which probably has a VERY high proportion of people who will want to use the new pension freedoms. Could be very interesting
    Dont think I will be taking any new clients on until this is resolved and will just stick with servicing existing clients and people already on our customer records as having plans we have been involved in as they are at least a known quantity/risk for us and our PI as they didn’t complain before!

  19. As others have pointed out, what the client may have said he wanted to do (if that was anything other than to maximise his income stream with minimal risk) will, as far as the FOS is concerned, have very little relevance to the course of action that the adviser should have recommended. A signed statement from the client that he understood what he was doing and which the adviser facilitated contrary to his recommendations is no defence.

    When things don’t turn out as the client hoped, there’s a strong possibility (enthusiastically egged on by a CMC) that he’ll claim ignorance and that the adviser should have steered him away from his own folly. I’m just a simple man who doesn’t understand these things, least of all the massive report with which I was presented. Mr Smith told me that the disclaimer he made me sign was just a formality and that everything would turn out fine. I trusted him to give me good advice but he let me down and now I’m in financial difficulty. Who would bet that the FOS adjudicator will do anything other than find n favour of the complainant?

    I really don’t think that many IFAs are rubbing their hands with glee about the opportunities for the advice sector. It’s vastly more likely that the CMC’s are rubbing their hands with glee about all the opportunities for “assisting with” complaints that these new freedoms are likely to present for them.

  20. @Nelly
    You need to understand the context when taking a few words from an Act. What you have quoted are some of the principles to be adopted with respect to the MHA and deciding when someone doesn’t have capacity to act for themselves. As far as I’m aware that’s not the role of the FOS.

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