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FCA issues suitability warning over 500 DB transfers

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The FCA has issued a warning notice to an individual after their firms advised more than 700 defined benefit scheme members about the merits of transferring to a defined contribution pension.

As part of enhanced transfer value pension transfer exercises, 500 of the DB members decided to transfer to a DC scheme, with a total of £12.7m moved.

However, the regulator says many of these were at “serious risk of receiving unsuitable advice.”

The FCA did not name the individual it had warned, but says they had compliance oversight controlled functions at two authorised firms.

The FCA says in its warning notice: “The FCA considers that, between 1 February 2006 and 30 April 2009, the individual breached statement of principle 6 of the FCA’s statement of principles for approved persons by failing to use due skill, care and diligence in carrying out the compliance oversight function.”

Specifically, the regulatory said the individual failed to make sure the firms’ ETV advice process met its regulatory requirements.

According to the FCA, the individual failed to “identify obvious flaws in the ETV advice process which he should have identified either from his own review of the process, or from the limited file reviews that he undertook.”

The individual also “failed to give any or sufficient consideration to the compliance of the ETV advice process and of the advice given in his interactions with the pension advisers.”

The regulator has also raised conflict of interest concerns. It said the individual did not identify or manage potential conflicts over commission from the provider DB members were transferred to, and payments to a pension adviser based on how much ETV advice business they wrote.

The FCA concludes: “As a result of the individual’s failings, DB scheme members were at serious risk of receiving unsuitable advice.

“The FCA considers it likely that a significant proportion of the approximately 500 members who transferred from a DB scheme to a DC scheme would have decided not to transfer had they received suitable advice.”



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There are 19 comments at the moment, we would love to hear your opinion too.

  1. Unbelievable…Why would anyone do this & who ultimately pays !!!!

  2. FSCS here we come... 7th February 2017 at 2:29 pm

    Oh well…. I’ll start saving for the levy now…

  3. Next PPI scandal waiting to happen. Unfortunately the small limited company advisers who do this might go bump and leave the rest of us to pick up the FSCS fees! Outrageous! DB Transfers are right in some circumstances however people moving them early before retirement = big risk

  4. It struck me recently given the shift back towards DB transfers that small firms (e.g. where the principle/directors give advice) may well have much more interest in the appropriateness of the advice when compared to a large national firm where the advisers are simply ’employees’ and are likely to have less of a vested interest in the business (and therefore the impact thereof of ‘poor’ advice).

    The FCA has never fully tackled the potential for conflict of interest between remuneration and sales/advice and I suspect DB transfers could be where the risk is at it’s greatest in the regulated ‘world’ – having said that, there are even bigger elephants in the room (lack of clear disclosure, non-advised sales paying commission, UCIS etc).

    • Maldwyn Williams 7th February 2017 at 9:43 pm

      The biggest systemic risk obviously comes from the larger advisers, it is simply a matter of scale. Furthermore, in the past larger advisers have not bathed themselves in glory because of inadequate systems & controls across a large sales force.

  5. This seems to be pretty serious, why is the firm and individual not being named? Presumably these details will become known when the firm defaults and we end up paying via FSCS!

  6. Trevor Harrington 7th February 2017 at 3:30 pm

    If these cases were between 2006 and 2009 ….. why has it taken the regulator EIGHT YEARS to question it …. ?

  7. I outsource my DB Scheme Advice to avoid any conflict of interest

  8. Several years ago (2010?), I was offered an ETV and the 1st line of the letter I was sent quoted the Pension I would get as the PUP value in 1993! What happened to the revaluation between when I left that (FS) company and the date they offered the ETV? What about the ongoing revaluation up to my SRD in 2021? (Last time I checked the projected value at NRD was nearly three times the original PUP!) No mention of any of that in the letter or expensive glossy pack I was sent. It was absolute rubbish but I’m sure some of the less well-informed ex-staff members would have fallen for the con. Give up ALL guarantees for an enhanced deal with Aviva. They had provided an IFA service through a portal which I dutifully used but knowing how valuable my DB guarantees are, my attitude to risk ensured that I stayed within the scheme. The revaluation may not be so good as when I last got a forecast but at least I’m not having to worry about fund performance and annuity vs drawdown. There are very few circumstances where a DB to DC transfer is good deal for the scheme members. After all, the only reason it’s offered is to reduce liabilities within the scheme!

  9. There is a major challenge that the regulator seems unwilling to offer clear guidance on. What is suitable advice when dealing with a deferred DB member before benefits are needed. More concerning is that we do not know how the FOS will review these cases, other then past experience of hindsight judgements and that apparently clients have no brains and frequently state with success they did not understand. Evan with pages of client signed agreements, stating they understand the risks, no adviser feels they are covered.

    Take a recent case. A capital growth investor, 50 years old, with the deferred scheme CETV high at this time due to low gilt yields, having doubled in 3 years, they have been monitoring and the scheme is now offering between 40 and 50 times income. The critical yield is 3.8% to NRD at 60 with a 25% penalty if benefits taken at 55 from current scheme. The transfer value has fallen by £80,000 in one month since requesting the figures due to the rise in gilts ( they have an online system to monitor). They have asked to transfer as they wish to secure the value, death benefits and have stated after three meetings they understand the risks. They have stated they believe the transfer value is most likely at its highest point, that they are not willing to risk guilt yields increasing or the scheme reducing the transfer values for other reasons. They do not want fixed income, want flexibility and cannot understand why we are even questioning why they should not move.

    So, the regulator would argue you should not transact until benefits are required, yet, gilt yields in the coming years could substantially lower the transfer value if they increase. Even taking into account the increase in income. The client is insistent they will access at 55 and want 25% PCLS to reduce BTL mortgages with no income from the pension.

    I cannot win, which ever option I recommended I am facing a potential claim. If I don’t transfer and the gilt yields do increase, or the scheme offers less its a claim for poor advice. If I do recommend and the investments perform poorly, the client has selective memory loss, am I confident the FOS would find in my favour, no.

    The regulator and FOS cannot keep sitting on the side lines, they need to set out clear defined processes and regulatory statements that will offer a degree of protection to honest advisers that do the work correctly. At this time no adviser feels safe, the only way is to do as so many have to dodge the coming bullets, do not offer advise on DB transfers, which also is unacceptable.

    Seems like a straight forward case, but would you sign off?

    The regulator and the FOS must stop this endless cycle of having the penny and the bun. They must stop waiting to see what happens and act NOW. Stop trying to have it both ways, which at this time clearly is the preferred option they wish to have. Why has the above case taken so long to identify, or is it a case of high complaints to the FOS that has lead them to this companies doors?

  10. Strange the FCA have not mentioned the individual?
    The FCA believe this is a hot topic and is gathering traction. It could of course be a shot across the bows of the industry to further caution practitioners against such transfers

  11. The problem is simple, DB transfers are being justified on the Death Benefits and Flexibility when taking benefits, I do not recall ever having seen in regulation and Funding Actuarial Calculations the assumptions that the funds can be taken OUT of the Scheme. The Employer is funding for a Pension Income, for in the most, the Individual Employee and their dependants. Based on their income earnt. Why O Why are Product Providers pushing DB transfers down our throats. O yes! with the lack of new pension funding in Product Providers Funds, it looks like they have seen the end of the gravy boat!!

  12. I am 100% sure that I am the DB Guru here, and it is safe to say that it is always suitable to transfer a DB pension. You can always think of a reason to transfer, say they didn’t like there old DB pension they fancied a change and a nice shiny SIPP. easy. don’t know what you are all going on about. me and the Gedgetron smash through transfers on the daily. I don’t believe in suitability letters either, if the FCA has a problem I will just call them up and explain that I know everything about DB transfers and they are wrong, trust me. I’m not even authorised to give advice but I can smash through a TVAS in 40-50 hours when my arthritis isn’t bad. I once called the CEO of the FCA and transferred his DB pension without him knowing, I’m that good. If anyone has any queries then call Dr.DB aka Jazzy Jeff

  13. I am a pension transfer specialist, but could someone please tell me what a DB is, I’ve never heard of it.

  14. hi steve article I told you about.

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