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DB transfers given a “sheen of suitability” by advisers, Percival says


Former FCA technical specialist Rory Percival has expressed concern over how advisers approach defined benefit pension transfers.

In a blog post on his website, Percival said that transferring a DB scheme is suitable on many occasions, and compliance officers or advisers often wrongly thought that the FCA would always consider a DB transfer with a very high critical yield to be unsuitable.

However Percival, who was one of the regulator’s advice sector leads up until last month, said that advisers were sometimes using DB transfer as “ticking a box” when the client wants flexibility and death benefits.

He writes: “I have seen many cases where transferring is the right advice, even transfers with outrageously high critical yields can still be suitable for certain clients. And when this is the case, if advisers are going to offer advice, then they must provide suitable advice – to transfer.”

“What I am more worried about, however, is advisers recommending a transfer when this is not suitable advice. You can see the appeal to the client – the ability to have access to a potentially large pension fund in a flexible way which can then be passed on to a spouse or children on the client’s death. We all know about hyperbolic discounting – people valuing money now much more than more money in the future. And the file can be given the sheen of suitability – the client’s objectives for flexible benefits, and assets to pass on to spouse and children at death, can be met by transferring but not by keeping the DB scheme. Objectives met, box ticked.

“But ticking a box doesn’t necessarily mean it’s suitable or in the client’s best interests.”

Percival adds that communication with clients is key to ensuring a DB transfer is really what they need.

“If it was clear to the client they could have a much higher but inflexible income, would they have preferred this? If the DB income was higher even after paying into a whole of life plan to provide the death benefits the client wanted, would they have preferred this? If there was some other way of achieving the client’s objectives whilst retaining the valuable guaranteed DB benefits, would the client have opted for this?

“Guaranteed DB pension benefits are very valuable. Advisers should be considering whether there are other options that meet the client’s objectives more effectively.”

The FCA is currently consulting on how redress is calculated for unsuitable pension transfer advice. The regulator is concerned that the way redress is calculated – which dates back to the Pensions Review in the 1990s – no longer puts consumers back in the position they would have been if they had stayed in the DB scheme.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. An interesting insight which confirms what is often the case – DB transfers can be in the client’s interests. What really frustrates me as an hourly charging firm is the large number of inquiries we get from folks who want to transfer (specifically mentioning SIPP rather than a PPP) and when we explain that we may not recommend a transfer they walk away not even prepared to have a free initial meeting and a massively discounted TVAS just to sense check the transfer! Client wants to do it and they will find someone who will at great risk to themselves and the adviser community that may well pick up the bill later through levies or PII..
    This week we had a qualified adviser who wanted Mandy to sign off a transfer as he couldn’t. The problem Rory is that too many people have been fed too much spiel from ignorant or self interested parties that transfers are a good idea, this feeds on the wish to spend now and to hell with the consequences later and surprise, surprise we find advisers prepared to facilitate this taking huge percentage commissions. Good and responsible advisers are well aware of the risks.

    • Alan Wilson - of SFIA 6th March 2017 at 9:01 am

      Sam & Mandy

      I thought I’d recognise those names!
      Alan Wilson (ex-Allied Dunbar in 1994-1995 era Leicester branch then under Richard Garside?
      Do get back – if you get this!?
      At least for a catch-up some 20 plus years later!!


  2. The position is far too polarised around those who think transfers are ‘bad’ and those that think they are ‘good’- much of the former comes from the advisors perception of the past or the view of the Compliance Directors who are more minded to protect their business against anything that looks risky or the latter from advisors charging on a ‘contingent’ basis as this is the only way to get paid. The fact is that every individual customer is different, has different levels of understanding, commitment to the objectives and attitudes to their future- each one must be judged individually and not based on an individual advisors generic view. I think it is just as wrong for advisors to ‘ignore’ their DB scheme as it can be to move it. I think industry/regulator needs to be supportive of DB transfers where they are right to do it, advisors need to do their job properly and objectively and look at the whole retirement area and not just product to product, all fees should be non-contingent so their is no undue conflict and all meetings should be recorded. The whole arena is concerning for lots of reasons- but doing a proper job and assessing all options effctively, ensuring clients understand the consequences of their decisions and making sure industry has the right culture to deal with the advice- this must be more professional and important than hiding our heads in the sand and hoping it will go away.

    • Very sound. But so very expensive that hardly anyone’s likely to be prepared to pay for it!

      • To pay for what Julian? I don’t follow you.

        I agree with Jane Hodges. I don’t get involved with DB transfers, the few DB schemes I come across (and they are rare) or clients still have as preserved benefits I remind clients about and if they want a AF4 qualified and authorize firm to obtain a TVR and then consider it, I let them know the relevant firms fees and then back off. Invariably there are other ways a client can meet the perceived need and I say perceived as often asSam Caunt says it is something someone has been trying to sell them which has triggered the initial inquiry and once we discuss things we can often find other ways of resolving things for them short of an actual transfer. Not that I advise either way of course not having the relevant permissions.

  3. The fact the FCA are currently looking at redress tells me, once this has been completed, they will target every single DB transfer done since. The inevitable outcome WILL be that the FCA will decide a lot of the cases will have been unsuitable advice because it doesn’t meet what they define as suitable so pay the new, higher redress. The regulator will not define what is good because it puts the onus on them and they refuse point blank to take any responsibility in case they are wrong in what they said.

    • Marty- I think we blame too much on FCA and we as an industry also must take our share of the blame- not all of our advisors are ‘good’ at what they do- many have poor outdated knowledge and are use to making sweeping assumptions without doing the work to find out what is actually correct. Rory is giving us some insight here- nothing wrong with transfers where it is right for the individual but we have to stop pulling out our standard rationale for saying it is suitable in every case and do the work to find out whether it is. This has always been necessary it is just that we seem to be being pulled up on it more since pension freedoms- and probably rightly so. That said, times have changed, what was acceptable over last 20 years is definitely not acceptable now so advisors need help to understand what has changed and why so they can build it into their advice processes effectively- I think everyone is fed up of being hit round the head by compliance teams and FOS in ‘hindsight’- anyone who thinks it isn’t with hindsight go and check out some file reviews and complaints from 10 years ago!!!!

      • Why should ‘good’ advisers take the blame for bad ones in the name of the ‘industry’? They have no influence or control over the bad ones and even when potential problems are highlighted to the FCA (RDR most obvious but there are others, including around pension freedoms) the FCA ignore it or are very slow to react.

        The FCA have all the power. They set the regulatory framework which influences adviser behaviour. They decide how to allocate their resources. Where they really fall down is in their understanding of how regulation and rules impact adviser/firm behaviour.

        Generally speaking the good advisers (probably 90%+ of the community) want and will do the right thing for their clients. The other 10% or ‘bad’ advisers are either ignorant or wilfully acting against the client’s best interests. I suspect the latter represent 3% or less. Yet the regulatory answer to perceived problems (I include the EU in this, not just the FCA) is to create more and more rules and guidance. The practical effect is to burden the good advisers, have little effect on the ignorant, and no effect on the wilful. To be fair the RDR did go some way to dealing with the ignorant. The way to deal with the wilful is actively go out and catch them – the ‘good’ will gladly help the FCA if they ask, listen and act.

        Surrounding this is a regulator and overall regulatory environment which is seen by many advisers and firms (remember, most are ‘good’ ones) as inherently negative in it’s outlook – I am reminded of an old phrase, “Floggings will continue until morale improves”. I don’t doubt the FCA’s good intentions, but they’re generally reactive and concentrate to much on looking good politically than the client outcomes. It’s a lot easier and comfortable to show you are doing a great job, i.e. berating those nasty firms and making rules to get them in line, than thinking through the best way to practical and effective outcomes. Imagine if the FCA (and EU) repealed rafts of costly, ineffective, inefficient rules and guidance, made clear in simple terms what was and wasn’t acceptable at a level detailed enough for firms to feel secure, and started working positively with those firms to put clients first and address the 10% of ‘baddies’. You’re right, it’s a tough sell. It seems no one is interested in real change, let’s keep looking good to our political masters, keep doing what we’ve always done and profess our hope in getting a different result… now where’s that dead horse, it needs a good flogging…

        • The FCA positive compliance workshops moving round the country are trying to address that and are worth attending.

          • Phil, I agree and would also add that most FCA personnel I have met or worked with (including Rory) are great people trying to do a good job. Unfortunately, and this is my point, this happens within an inherently prejudiced and politically-led environment and structure which focusses on reacting and rule-making rather than enhancing client outcomes through meaningful change. This article is a good example of this (accepting Rory has now left the FCA it’s typical of what you see from them). It mentions good advisers and suitable advice but essentially it’s a negative lecture aimed at the ‘bad’ 10% (the ‘good’ 90% will already know and be conforming). Of those, the ignorant 7% will not look, or look but ignore or see nothing that enhances their learning. The wilful 3% don’t care, may even be amused. Some of the ‘good’ are left shaking and scratching their heads, wondering if they are doing a good job after all (and what do the FOS think?). Result? Other than raising my blood pressure, nothing…

  4. Rory please apply for a job at FOS as soon as possible.

    See if you can convince them that it is not all about the critical yield

    Best wishes

  5. We blame the FCA as they have proved to be inconsistent and generally incompetent. This whole system is set up as a Government Ponzi scheme – the victims pay fees to their restricted and or sponsored advisers – who are then “challenged ” by the FCA who request “fines””. Depending on your firm your fines are negotiated. Meanwhile other advisers pay hefty fees to the FSCS and the FCA and charge the victims ( clients). These pyramid selling scams operate succesfully in Banks and Insurance companies eg with profits and fees and charges which trickle up form the bottom upwards IE to the salaries and bonuses and pension scheme benefits – of the Directors. Some insurance companies and banks influence the Government using their employees to “provide their direction ” and the MP’s who refuse to take their duty of care or due diligence seriously – accept these. Increasing Nat Ins through compulsory pension contributions by Employers and employees due to the gross negligence of MP’s and their failure to meet the State Pension Scheme promises IE offloading responsibility whilst raising Taxes. There is a similar Ponzi Scheme in operation by CONservative Government through their NHS Ponzi Scheme – removing cash from the NHS – and diverting it through a series – of associated operations – to divert divide and conquer – to remove patient care by Jeremy Hunt MP and general layabout. So many scams have been set up by the CONservative Government in FCA FSCS FOS – and the revolving door of employment for losers and layabouts – who could not provide any reasonable or working – or worthwhile strategy. Pensions are doomed – and payments into them can not be certian they will get any money out due to high fees and RIP off Britain – by the CONservatives in Government

  6. Whilst Rory is busy getting employed at FOS, can Grey Area and Jane Hodges apply to work at the FCA please?

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