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FCA: Only half of DB transfers rated suitable

DB transfers feel more heat from regulator as only third of product choices found suitable

The FCA has released findings of an assessment of defined benefit transfer advice showing just 47 per cent were rated suitable.

In an update on its work published this morning, the regulator has revealed the full scope of its work in the market.

Over the last 24 months, it has reviewed “detailed information” from 22 firms on their DB transfers, with 13 firms providing client files to the FCA after its initial analysis.

12 firms were visited, of which four decided to stop their DB transfer business.

As part of its wider work on scams, the regulator has identified 32 firms that chose to stop providing advice or put restrictions on the pension transfers they conduct.

The regulator has also released results of its suitability assessments at the firms it investigated.

Of 88 transfers that were advised to go ahead, it found only 47 per cent were suitable. In 36 per cent of cases, suitability was unclear, while 17 per cent were ruled unsuitable.

Separately, it assessed the suitability of the product and fund the customer ended up in. Only 35 per cent of these were suitable. 24 per cent were unsuitable, and 40 per cent were unclear.

The FCA said common issues included failing to account for personal circumstances sufficiently, not matching needs and objectives with the recommendation, and inadequate assessment of risk tolerance.

It also expressed specific concerns regarding the use of outsourcing and pension transfer specialists.

The note reads: “In some cases there was a lack of information sharing between the introducing firm and the specialist transfer firm. This resulted in unsuitable advice where the specialist firm did not have enough information about the client’s objectives, needs, and personal circumstances.

“We found firms where the adviser or transfer specialist made a recommendation without knowing where the transfer proceeds would ultimately be invested. In some cases the specialist transfer firm did not make a recommendation for a receiving scheme or investments.”



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There are 26 comments at the moment, we would love to hear your opinion too.

  1. A DB scheme starts with a capital loss equivalent to the CETV for at-retirement advice. As the pension is paid out recovery of capital begins. How long are you prepared to wait for the recovery of your initial capital value revalued for lost investment growth? It all depends how you look at these things. If you have a big win on the lottery you don’t say – Yes! I must give it away to an annuity provider! Pension freedom needs a whole new thought process.

  2. Yet again no actual clear substance, explanation or solutions. It is very easy to say its not right, but impossible to put right unless there are actual specific examples and explanations as to why unsuitable or not clear. The regulator has to stop this continuous onslaught of its not good enough, we are not happy, its not clear unless it is willing to clearly provide the reason why. One rule for us another or the regulator seems to be the message. Advisers have to be crystal clear, the regulator on the other hand can suggest, not make clear, has no actual solution and will not commit to any solution.

    • @ Martin Evans
      Just how much help do you need? Is the following not clear enough for you?

      1. Failing to account for personal circumstances sufficiently
      2. Not matching needs and objectives with the recommendation
      3. Inadequate assessment of risk tolerance.
      4. In some cases there was a lack of information sharing between the introducing firm and the specialist transfer firm. This resulted in unsuitable advice where the specialist firm did not have enough information about the client’s objectives, needs, and personal circumstances.
      5. We found firms where the adviser or transfer specialist made a recommendation without knowing where the transfer proceeds would ultimately be invested
      6. In some cases the specialist transfer firm did not make a recommendation for a receiving scheme or investments

      • A little disingenuous… leaving aside the last two which can be easily quantified, the rest are just qualitative assessments based on generalisations. You can argue that it is clear in a limited sense but it’s certainly not informative in the way Martin was querying, i.e. substantive, explanatory or solution orientated.

        It might be more helpful to know exactly what was missed, what risk tolerance was done and why it wasn’t adequate; was matching of needs and objectives to the recommendation something to do with risk or the ability of the product to meet objectives, and why, etc?

        • If 47% were found to be okay, and 17% were wrong, when the remaining 36% are re-reviewed, then no doubt over 50% will have been found to be suitable. On that basis, the majority can get it right.

          This just leaves the question, are the remaining advisers unable to justify their ‘advice’?

          It really isn’t that difficult.

  3. Robert Milligan 3rd October 2017 at 1:20 pm

    Forget qualification, exams, Regulation, and calculations, its very simple, Do you want a Guaranteed Income of “X” or the flexibility of utilising a lump sum how you want. Not sure what else needs to be asked, other than making sure the Transfer Valuation is sufficiently enticing.

    • Far too simple and sensible, besides which the FOS would very probably uphold complaints from people claiming that the true value and implications of what they were giving up by transferring weren’t properly explained.

  4. slightly misleading headline.”In 36 per cent of cases, suitability was unclear, while 17 per cent were ruled unsuitable”. Unclear does not make it unsuitable, just shoddy work on factfind/suitability report etc.

    • The headline is technically correct though it does leave the implication the rest were unsuitable. On the other hand, and separately, 24% of the product and funds recommended were unsuitable. Depending on whether these unsuitable cases crossed over it could be up to 41% were ultimately unsuitable.

  5. PI providers will love this !!

    More exclusions, a reason to dodge paying claims, higher premiums….. a licence to print, as my old boss used to say !

    As Keith S has pointed out only 17% was unsuitable but people don’t and won’ read or see this

    Simply put, advisers are being regulated and priced out of the market……leaving plenty of room for the scammers to fill their boots with lots of lovely pension cash from clients

  6. peter mulholland 3rd October 2017 at 2:53 pm

    Doesn’t paint a very good picture

  7. Will this comment get posted?
    Further to my last comment, 17% is still way too high, but as DH has sort of pointed out I just wish those that write the headlines read the article first.

  8. I remember that in the late 80’s a pension review was instigated by the then regulator, the PIA.

    Part of the requirement of the review was that letters were sent to those who, via an adviser, had transferred benefits from a DB scheme in an A4 specially printed envelope that you purchased from the regulator. It had printed in large type “Are you owed”.

    Fast forward to 2017 and it seems that nothing was learned.

    DB schemes transfers should simply be banned.

    • Fond memories…

      As I have pointed out previously, when the brown stuff hits the fan it doesn’t really matter whether the advice was correct or not. When clients get these letters or the modern equivalent and it goes to the FOS, the outcome is biased. With the assistance of claims chasers the client also gets to plead ignorance and “I didn’t understand, if only I’d known what I was doing I’d have kept my company pension”.

      Been there, done that. It’s not pretty but pays well…

      • The problem with financial services is that there is a consumer expectation/ entitlement to compensation irrespective of merit if things do not work out as hoped for.

        Products or indeed ToB’s today do not have in the small print that any bad decision you, the client, make today will be compensated for tomorrow but that is what seems to happen.

        The genuine cases of bad advice and practice get bundled with the false ones painting a very bad picture for all

  9. Explain to the widow and her two children why she only gets £12,500 pa (and her grown up children can expect nothing)12 months after you advised her husband to stay in the DB scheme with his index linked £25k pa rather than take the CETV of £700,000. As I said in the first comment, a DB scheme starts with a massive capital loss for the family, and only slowly regains that capital loss if the member lives long enough.

    • “…if the member lives long enough.”

      On the other hand, explain to the elderly couple why their pension pot is no longer able to pay them the income they need because the income drawn down, coupled with adverse market movements, didn’t work out too well. Before long there will be nothing left and they will be dependent on the State.

      Simple examples are poor ways of supporting absolutist or fixed positions on such complex matters. Did the client have other income? Were they highly adverse to risk? Was the husband in good or poor health? Was the adviser imposing their values on their client? Any one of these can flip the recommendation one way or the other. Lack of knowledge about them means you’re not in even in a position to make a recommendation (which probably applies to many of the FCA’s ‘unclear’ outcomes).

      There are times when a transfer is very clearly the right recommendation. There are times when it clearly isn’t. The problem with DB transfers is that the grey area in between is quite large. It’s not helped by rules and politics not working together. And it’s not helped by a regulator that is unwilling to give firm guidance around it for fear of getting it wrong – it’s easier and politically expedient to reserve the option of blaming someone else when it goes horribly wrong.

      It doesn’t need much examination to see that history is repeating itself with pension transfers. Lucrative opportunity created by Government action. Advisers dive in to take advantage. Regulators make noises about quality of advice. After a time it turns out a large number of people are actually worse off (doesn’t matter why or whose fault). Someone has to take the blame and cough up and the choice is between the Government, the Regulator and advisers. The decision is made by the Government and the Regulator (controlled by the Government). The result is predictable.

      This time it might be different. Assuming there are no major market corrections, any problems might just stay localised and containable. If you believe that then jump in. If not, stay out or pick your cases very carefully.

  10. As a qualified Pension Transfer Specialist, amongst many other things, I find myself agreeing with the FCA and many of the commentators on this forum.

    What started out as part of a normal retirement planning exercise, matching up the income needs to the provision in place, has now become the Golden Goose for both clients and advisers alike, particularly once they find out the transfer values. Then the sales culture takes over, looking for the shortest route for everyone to get their hands on the money.

    I am certain that the stories being given to specialists like myself have been dressed up to favour transfers, and this is no doubt where the client recollection will differ in the future when it all goes wrong.

    Yes, there are valid reasons for transfer, I have approved many for what I consider to be market counterparties, and some for the valid reasons that we all know about.The scammers will find a way in amongst all the confusion, and honest Joe will pick up the bill once again.

  11. Was every single PPI policy miss-sold ?

    The regulator said as much…. so it must be true

    Tell me again what qualifications do these FCA checkers have ? or are they just glorified burger flippers ?

  12. We don’t need “pension transfer specialists” for at retirement advice. We need investment specialists. A pension transfer specialist is the last person I would want to commit £700,000 to for advice on future income. You can boast a status of “pension transfer specialist” with the antiquated G60 that bears no relation to today’s requirements.

    • It’s the decision to give up the DB benefits before the investment specialist gets the money that needs ‘pension transfer specialist’ advice. Asking a highly qualified DFM who knows nothing about pensions to help you decide to give up a DB pension seems a bit racy. Ideally they would work together.

      Many IFAs and investment specialists also boast of being IFAs and investment specialists based on qualifications they took many years ago that bear no relation to todays requirements, perhaps we don’t need them either…

  13. At retirement advice is investment advice. You have to compare investment of the CETV with a DB scheme that takes all your money (100% capital loss – assuming no commutation of tfc) and gives it back to you in dribs and drabs. There are varying degrees of escalation but you don’t need to be a pensions expert to know what a scheme is offering in retirement. You read the scheme booklet. And what’s the point of comparing a scheme with a market annuity that no one wants anyway? It is a new rule to bring in a pension transfer specialist to at retirement advice. But the latest report is saying that pension transfer specialists should be saying where to invest the money. These are the rules! When you win the lottery you don’t go to a pension transfer specialist to be advised where to invest. Pension transfer specialists should have nothing whatsoever to do with saying what happens to the CETV once it has been transferred as cash. As things stand at the moment an adviser with a 20 year old G60 qualification can advise an at retirement transfer to a CETV and then advise on how to invest the money.

    • “But the latest report is saying that pension transfer specialists should be saying where to invest the money.”

      Not really, it’s saying that they must take it into account when they assess the advice to transfer. Transferring into a deposit account is a different prospect to transferring into a high risk portfolio, notwithstanding the client’s risk profile. Bottom line is that the investment affects the advice so must be taken into account.

      “And what’s the point of comparing a scheme with a market annuity that no one wants anyway?”

      If the pension is being crystallised you don’t need to do the formal TVA comparison – COBS 19.1.2A. However, you are still potentially exchanging one benefit for another so some analysis needs to be done.

      Comparing a lottery win to DB benefits is nonsensical as the lottery is cash not an income. So of course you wouldn’t go to a pension transfer specialist.

  14. Firstly, a review that only assessed 22 firms over a 24 month period is a very small sample of activity in this space. And that review was ‘spread thinly’ over a 2 year period.

    Secondly, only 13 firms (from the entire UK universe of firms) provided actual case files…..and then only 88 such case files. That’s too small a sample to be meaningful.

    And then of those 88 cases, (only) 17% were ruled as unsuitable.

    It would be useful if the FCA could publish details of these 15 unsuitable cases so that the wider masses – both in the adviser community and among the general public – can understand what is and isn’t suitable (in the FCA’s opinion).

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