The release of new complaints data and updated FCA rules could change the fortunes of final salary advice
Just when advisers thought defined benefit transfers could not stay at the top of the agenda forever, a host of important developments have kept interest alive.
A year on from the British Steel Pension Scheme crisis, and a month since new regulations took effect, the Financial Ombudsman Service has published the first definitive set of complaints data on DB transfers.
Meanwhile, the FCA has sent another letter to advisers enquiring in to their practices, while advisers gathered again for a self-arranged conference on best practice.
Advisers’ concerns have remained the same: uncertainty over potential liabilities and a squeezed market for professional indemnity insurance.
But what can the latest data tell us, and will the FCA’s new rules and investigations shore up the market?
Called back to arms
On 12 November, the FCA sent advisers another set of questions as part of its efforts to collect data on pension transfers and assess practices across the market.
With a 3 December deadline looming, the request made the recent adviser conference on the subject, The Pension Debate III, all the more timely. A hot topic of discussion was whether using “triage” – the process of vetting unsuitable DB transfer clients at an early stage – would be a blessing or a curse after the FCA issued renewed guidance last month on how advisers should approach the task.
The importance of getting it right was hammered home as FOS data revealed 318 complaints had been received about DB to defined contribution transfers since the pension freedoms came in.
However, there are also positive signs for the market from all of this. DB transfers actually made up just 2 per cent of all pension complaints between April 2015 and March 2018, when the FOS received a total of just under 15,000 complaints on pensions.
An average of 33 per cent of complaints were upheld in each of the three years, meaning most go in the adviser’s favour.
Delays in advice accounted for the highest number of complaints over DB transfers at 119, along with the highest uphold rate at 44 per cent. The second highest number of complaints related to administration, 73, with an uphold rate of 29 per cent. The suitability of advice ranked only third with 47 complaints, of which 38 per cent were upheld. The FOS says it is interesting to compare the uphold rates for DB transfer suitability complaints before and after pension freedoms.
Historically, the uphold rate for DB transfer cases pre-pension freedoms was around 65 per cent, whereas post-pension freedom cases have a much lower uphold rate of around 33 per cent.
The Ombudsman adds the fact it has only received a total of 318 complaints with a wide variety of issues over a three-and-a-half-year period compared to the many thousands of DB transfers suggests consumers are relatively happy with the advice they have received so far.
Echelon Wealthcare financial adviser Alastair Rush
There are two issues flagged up by the FOS’s data: administration and advice. The greatest percentage of claims relate to delays in advice and the administration of advice. This suggests we might be seeing large volumes of transfer requests, possibly with a limited number of advisers, who are finding it difficult to handle them in a timely manner.
An IFA who handles two or three transfers a year would not have difficulty administering requests normally. I find it interesting there are 16 complaints for charges and only 11 per cent were upheld. This suggests clients appear happy with the charges they are paying.
I am also really surprised there are so few complaints about DB pensions since the freedoms.
It is less certain whether this will allay adviser concerns over the FCA’s new guidance on triage, as well as the fledgling appropriate pension transfer analysis test that replaced the traditional TVAS in October and PI insurance bills however.
Many advisers expressed surprise at the figures as they were expecting more complaints over DB transfers, and higher uphold rates.
But they differ on how important they think the figures are and whether advisers should change their approach to transfers because of them. Some think the data should not change how advisers handle transfers, as they are made obsolete by the watchdog’s new rules.
For instance, the perimeter guidance on triage comes into force on 1 January 2019, while pension transfer specialists must have the same qualifications as an investment adviser from October 2020, meaning the complaints landscape could look much different then.
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They also argue the data is not comprehensive enough to draw any firm conclusions about whether clients are truly happy with the advice they have received on DB transfers.
Niche IFA director Ray Adams says: “The general public seem to be more focused on achieving the transfer, because most of the complaints are about delays. That indicates the public are either very happy with the advice they have received, which is potentially positive, or they don’t know it is wrong.
“We won’t know if clients will become upset with the advice for many years as the figures only give us a snapshot of what is happening.
“The figures should not make any difference to what IFAs do on transfers, as the complaints emerged from a previous regulatory framework.”
Others, such as Financial Life Planning IFA Kate Shaw, point out that the number of complaints about delays should encourage advisers to consider how they can better communicate with clients about transfers and manage expectations.
She says: “The large majority of complaints seem to involve a lack of communication or a miscommunication which is in some way flagged up by the delay in advice. The theme that stands out for advisers is they must manage expectations better and communicate more clearly. These transfers are a big deal and managing the process is important.”
One statistic which confused advisers was the figure for complaints categorised as “declined to advise”, suggesting an adviser could be held liable for telling a complainant they would not give them advice.
This raised the question of whether advisers can be held liable for telling clients to seek help elsewhere. Money Marketing asked the FOS to clarify this, and it says the one upheld decision marked “declined to advise” refers to an adviser who agreed to advise a client, but then decided to stop giving advice during the three-month transfer value quotation window.
The FOS adds it is unlikely it would uphold a ruling against an adviser for simply turning away an unsuitable client.
In total, the FOS has received less than 10 complaints involving BSPS specifically, Money Marketing also learned, and the complaints it sees overall involve a wide range of different schemes, with no one particular scheme standing out.
While this surprises some advisers, law firm Clarke Willmott partner Philippa Hann believes there are several reasonable explanations for this, with one being the nature of the claims. She notes an adviser that has already become insolvent cannot go to the FOS but must go to the Financial Services Compensation Scheme instead, so some firms linked with major scheme collapses will not show up in FOS data.
Hann is managing a number of FSCS complaints in relation to the allegedly negligent advice of British Steel IFA Active Wealth to transfer out of the DB scheme.
Active Wealth has cost the FSCS more than half a million pounds so far, with claims likely to mount in the near future. Hann is taking action for the same complainants at the FOS regarding the investment of their pensions after the transfer, but these relate to the actions of a discretionary fund manager which is not insolvent, so they can be dealt with by the Ombudsman, but may appear in different data as well.
Hann also notes that where a client’s losses exceed the current £150,000 FOS limit, they may choose to go to court for compensation, while many will simply not be aware that the advice they received is unsuitable yet.
FCA figures published in October 2017 found 53 per cent of advice on transfers was unsuitable, but it may not necessarily have prompted a complaint. The FOS says it looks into each complaint based on individual merit, irrespective of what methodology the FCA chose to employ.
Hann acknowledges the current DB transfer complaints are still tiny in number compared to the amount of complaints received in total and the volume of transfers though.
FOS figures can help advisers to improve services
It is very useful to have this information because we can use it to influence our processes, including triage. For example, that delay in advice has the highest uphold rate means perhaps advisers could try to better manage client expectations upfront.
It is worth noting that people complain if they are unhappy and people who are looking to access money immediately are often happy if they achieve this. If they are unhappy with this decision, it is likely to be further down the line.
The point about declining to advise is interesting because I don’t think any commercial organisation is obliged to deliver their service if they don’t want to. There is only a reasonable cause of complaint if the refusal to give advice has made the client worse off, e.g. if they have paid for a service and it has not been delivered. I would suggest advisers need to make it clear what they will and will not advise on before the client pays any fees. For example, we cannot advise you where there is a transfer value of less than £100,000.
But it does need to be clear that refusing to recommend a transfer is not the same as refusing to advise at all. Again, advisers should make it clear to clients they will not just endorse their wish to transfer.
Triage will help in this area as it is about managing expectations. As an example, you could include a statement that if an individual is heavily reliant on the pension they are looking to transfer then a transfer is less likely to be suitable.
Conversely, if an individual is looking to take benefits immediately but not fully retire, a transfer might be suitable.
Fiona Tait is technical director at Intelligent Pensions
Advisers are sceptical triage can help them deal with any issues raised by the FOS data.
Financial Life Planning’s Shaw says triage is unlikely to help communication-based issues such as expectation management and delays in advice, as these are not really covered by it.
Niche IFA’s Adams goes one step further than Shaw and points out triage remains a deeply problematic area. He says this is because it creates the risk advisers will stray more easily into advice when they conduct face-to-face meetings, so could withdraw from the market entirely due to the regulatory uncertainty.
Adams also thinks improvements can be made to the way the transfer value comparator is used to help inform clients about considering their options on transfers.
He says he would like to see trustees include the TVC alongside a cash equivalent transfer value in scheme communications to members.
Adams cites the FCA’s policy statement 18/20, which says unauthorised firms, such as occupational pension schemes and their trustees, may be able to provide members with a TVC alongside their CETV, as long as it is not provided “by way of business”.
The policy statement adds if an advice firm provides its clients with a TVC during triage then this is likely to constitute pension transfer advice.
Adams estimates roughly 30 per cent of members who have requested a CETV would see the TVC, realise the value of their secured benefit and not seek regulated advice to transfer.
The sector is yet to see how that policy statement will bed in. So despite efforts from regulators and complaints bodies to shed more light on the market, the future direction of the DB transfer space is still up for debate.
Wingate Financial Planning director Alistair Cunningham
It surprised me that the uphold rate is relatively low and this may indicate a number of spurious complaints.
Yet it is unsurprising delays are such a high percentage of FOS complaints given the very tight deadlines that surround giving advice on DB transfers.
Delivering an appropriate recommendation in good time for the client to transfer is the significant risk IFAs have to handle.
There is nothing in the data which would make me more or less likely to decline to advise a potential client.
The FCA’s triage guidance, if anything, will see more firms giving less away “free”, but I don’t think it will change anything about the volume of complaints.