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FCA steps up scrutiny of DB transfer advice

The FCA’s review of pension transfer companies is having ripple effects throughout the profession

The news that Intelligent Pensions has agreed with the FCA to suspend giving advice on defined benefit pension transfers has shocked the sector.

Last week the FCA also ordered a Welsh advice firm, Strategic Wealth UK, to stop its pension advice as part of a review of the business.

The latest regulatory action has prompted concerns about the ability of outsourced companies and advisers to handle the volume of defined benefit pension transfers coming their way.

It has also stoked fears a further clampdown on DB transfers could be imminent.

FCA involvement

Money Marketing understands the FCA is carrying out what it calls a “multi-firm supervision exercise” on DB transfers. This has involved collecting client files from firms, and has resulted in follow-up supervision, including the requirements placed on Intelligent Pensions and Strategic Wealth.

The register requirements stop short of full enforcement actions, such as fines and bans. The regulator is not yet engaged in a full-scale thematic review of DB transfers, where it investigates key risks in a market.

However, in February, when the FCA entered into a voluntary agreement with international advice firm deVere UK for it to stop providing pension transfer advice, it also ordered a past business review, known as a section 166 or skilled person report, into the firm’s activities.

The FCA declined to comment on how many firms were involved in the exercise, or if any other skilled person reviews had been issued. Money Marketing has been told that one compliance consultancy has at least 15 firms on its books that have received file requests from the FCA.

Compliance firm TCC advisory director Phil Deeks says: “On a risk-based approach, the FCA will want to be looking at the number of DB transfers processed post-pension freedoms. The focus will not be on existing players, but those who are doing a lot more DB transfer work now.”

He says while Intelligent Pensions “voluntarily” entered into a deal with the FCA, this does not mean the company is necessarily without fault.

He says: “Voluntary is one of those terms used by the regulator that doesn’t really mean what is says. The FCA would have had concerns. It will ask the firm involved what it wants to do, bearing in mind the regulator’s enforcement powers.”

On the regulatory action itself, a spokeswoman for Intelligent Pensions says: “Following discussions with the FCA we have voluntarily agreed to temporarily suspend offering advice and arranging DB transfers. We are working with legal and compliance experts and remain confident that our recommendations and advice process deliver good outcomes for our clients and that we will be able to demonstrate this to the FCA quickly.”

Voluntary is one of those terms used by the regulator that does not really mean what is says. The FCA would have had concerns.

Process pains

Intelligent Pensions charges 1 per cent of funds on an initial basis and then up to 1 per cent ongoing, with extra fees for using the Intelligent Pensions Sipp.

Sifa compliance director Susie Bolton says: “Where free transfer value analysis services being made available to advisers in return for pension business placed with the service provider, we are inclined to believe this could represent a significant conflict of interest.

“It increases the risk of unsuitable outcomes for clients by compromising impartiality, and firms wishing to utilise such facilities should conduct and document their own research to ensure there is no expectation of minimum levels of business being transacted in return. If there is, they are advised to opt for an alternative solution elsewhere, or revert to a paid independent service with no strings attached.”

Why contingent charging on DB transfers just won’t cut it

Money Marketing understands that given the volume of transfer work Intelligent Pensions was processing, a small technical issue with transfers could have posed a systemic risk.

Intelligent Pensions declined to comment.

The knock-on impact is if outsourcers such as Intelligent Pensions fall from the market, this would place an additional burden on those already stretched to cope with demand.

National network On-Line Partnership estimates from its own membership that no more than one in 10 advisers have specialist pension transfer permissions.

The Pensions Regulator has estimated that a total of 80,000 transfers were made from defined benefit pension schemes over the last year alone.

There is also a question as to whether outsourcers potentially falling foul of the rules will put advisers off using them for DB transfers.

But Selectapension national accounts director Peter Bradshaw says a shift away from outsourcing pension transfer advice is unlikely to be significant.

He says: “The point is demand is massively outstripping supply. With record transfer values, people are discussing it with their mates in the pub that perhaps they want to transfer.”

Selectapension has outsourcing deals with advice firms including SimplyBiz, Lighthouse and Sesame Bankhall. It returns 40 per cent of the fee to advisers if a transfer goes ahead, and the process can take up to 33 weeks.

Selectapension has 20 full-time people in its bureau team and has processed more than 2,700 transfers since the pension freedoms. Intelligent Pensions says it has processed more than 8,000.

A total of 60 providers and 200 product variations are now built into the Selectapension system.

Bradshaw says: “We are handling the demand but it’s a challenge to meet some timescales and manage people’s expectations. We do prime advisers to tell clients this will take some time.”

With record transfer values, people are discussing it with their mates in the pub that perhaps they want to transfer.

IFAs enter the market

Advisers are increasingly considering obtaining the specialist qualifications required to carry out pension transfers.

Facts and Figures Chartered Fin-ancial Planners managing director Simon Webster recently went further by taking transfer value analysis reporting in-house, buying in software and hiring two extra specialists after he was left unsatisfied with third-party services.

He suggests capacity is an issue for both outsourced firms and advisers. He sympathises with advisers trying to handle high caseloads when transfer value analysis reports only last three months, can change by £25,000 to £30,000 on revaluation and incur a charge to write a new report.

Claire Trott: Is advising against DB transfers really safest?

Webster says: “It’s not about advisers pushing things through to get paid, they have to push otherwise the client loses out.”

But he admits there are examples of bad advice in the market.

He says: “In the 80s with pension reviews we had unqualified people giving people poor advice in this part of the market. People need to give advice properly, that’s very important.

“There is an argument if you are doing volume in a market, then you get expertise.

“I’m always more concerned when the FCA starts to micromanage, but if the regulator has concerns, then clearly they have to follow those through.”

The evolving debate on DB transfers

Malcolm Small, chairman, Retirement Income Alliance

The regulator is in a bad place with this market. The starting assumption that a DB transfer is a bad idea no longer applies.

When I was involved in the Pension Review in the 1990s, I decided the processes to work through. Ahead of that point we could see that the government’s ‘break from your chains’ message, for some people was not a good idea. We then went through a pain barrier, which scarred people for life.

What has changed since then? Firstly, employer covenants have weakened considerably. In the 1990s most schemes were in surplus and most schemes were supported by their employers. That has now changed. Schemes are now heavily in debt across the board and employer attitudes to DB are that they are a millstone that they bitterly regret ever having strapped around their necks.

Secondly, pension freedom and choice. As a consumer why would you not want control of your pension, and to be able to transfer your pension down the generations?

I understand the adviser perspective that this is a market that is potentially too risky to get into. But we need to move the regulator’s thinking from where we are today to at least neutral before this market will develop as I believe it should.

Nigel Chambers, managing director, CTC

We are finally seeing some movement from the FCA on this issue. It is over two years late, but at least we are seeing movement.

There are three core barriers to easing what it is going on in the DB transfers market. More people should be given the chance to take advantage of DB transfers. The first is the regulatory barrier. The second is the attitude of the schemes. There are many schemes where information about transferring is limited to one or two lines on their website. Trustees are failing their members if they do not make them more aware of the freedoms available at retirement.

We need to improve the quality of the information from the schemes when we need to do a transfer value analysis. We desperately need standards about the way that information comes out, and preferably we need that information electronically.

Thirdly, we need to cut the costs of the advisory process. There are also not enough advisers out there capable of providing the advice that is needed. We have to do more work in that area to smooth that process.

Gareth Davies, specialist pensions development manager, Scottish Widows 

Defined benefits is going to be one of the biggest corporate governance issues facing large and medium-sized employers in the UK for years to come. The pension holder versus shareholder debate has got a long way to run. Employers are saddled with these issues for people who do not work for them anymore.

Chris Hudson, distribution director, Aviva

A lot of my group of friends are aged between 45 and 55. It used to be that the topic of conversation after dinner was how much property prices were. It is now about the monetised value of their final salary pensions. People used to think their biggest asset was their house, and now with the cash equivalent transfer values we were seeing, people are beginning to question that.

What is driving demand is word of mouth. Advisers are not advertising that they give transfer value advice. It is more a case that a local company has a DB scheme, and one person has a conversation about transferring, they have their dinner party, and then a trickle of people are suddenly needing advice. This is something we need to be acutely aware of.

From a provider perspective, we see a lot of latent demand. It could be argued this is the tip of the iceberg. As word of mouth spreads, people who would not normally seek advice will be wanting help. The biggest concern is the undersupply to meet the demand for advice. We need to lobby the regulator to look again at the rules that say a transfer is bad as the starting point, in order that we can have a frank and objective conversation with consumers.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. paolo standerwick 15th June 2017 at 11:53 am

    Isn’t it funny. We have a regulator that says don’t transfer benefits and the government encouraging people to access their funds post April 2015. I think the gvt should be sitting down with the regulator and agreeing the way forward.

  2. This is short term politics and thinking at play. People see numbers they would never have dreamed of and The Treasury is rubbing its hands because it knows that many people don’t think long term.

    The billions in pension funds and potential tax take has long been a short term political target. Gordon Brown started it with the dividend grab and that broke the mould. It’s chaotic quite frankly.

  3. There is no justification for outsourcing DB transfer advice, whether it is to a bureau, a firm within the same network, or a transfer specialist within the same firm.

    How can a transfer specialist confirm that a transfer is suitable when they haven’t had face to face meetings with the client and been involved in the advice process from outset? The specialist needs to understand why the client doesn’t need a guaranteed income for life and whether the client truly understands that (s)he needs to get 5%+ p.a. growth, year on year, just to match the benefits that are (almost) guaranteed by the DB scheme.

    I know an adviser for one of the big firms, which is “having a push” on DB transfers. They have one DB specialist in their team, who has a massive backlog and is totally frazzled. I can’t imagine that he is in the right frame of mind to consider every case objectively before signing it off.

  4. @Roger Sole
    Who ever said that outsourced DB Advisers never met the Clients Face to Face and researched their Financial Goals and Objectives?
    And it is not just about the DB Scheme income. Current pensions, savings, bequests for beneficiaries, health etc etc also count.

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