It is time the Financial Ombudsman Service lived up to its claim of transparency and published the checklists it uses when examining cases
What does suitable advice look like for defined benefit transfers? The current regulatory default position is that they are unsuitable for most. The FCA has been consulting on whether this position should be abandoned but the Treasury Select Committee has pointed out such a change might lead to further bad practice in the area.
There will be people for whom the most suitable advice is indeed to transfer but the onus is, quite rightly, on the adviser to prove this. Greater tax free cash, supporting early retirement, flexible access to retirement benefits and better inheritability of the capital value of benefits are commonly cited reasons for such transfers.
This needs to be well communicated and, indeed, well documented. But documenting the process followed and the communication with the client does not protect the adviser from other people’s opinions.
Try as I might, I have not been able to find a regulatory checklist specifically looking at DB transfers. How does the Financial Ombudsman Service determine their suitability? Does it consider all of the points we work through in formulating advice? I suspect not. I have a feeling the FOS looks at only one thing, and that is the relationship between the calculated critical yield and the identified client’s attitude to risk. I suspect it is applying some kind of traffic light system, something competent advisers abandoned years ago.
Are professional standards being applied?
The fact the FOS does not publish any kind of checklist or balanced scorecard to demonstrate its thinking on the subject is a real pity because that would be most helpful. Or maybe not. If it did, I suspect none of us would advise a client to transfer again. An adjudicator at the FOS once told me they always found in favour of the complaining client of a DB transfer because “that is what the Ombudsman would do”.
This is not worrying, it is terrifying. Can it really be true that the FOS is not applying the same professional standards as you and I to determine suitability, but simply applying a blanket approach to such transfer?
As with the FOS, I wonder what checklists and balanced scorecards the FCA is using and why those have not been published.
Recently, I have seen a PI insurance supplementary questionnaire ask what maximum level of critical yield would be acceptable for a transfer to be recommended. There were no other questions that would lead me to suspect they knew about alternative methods of extracting money from a pension pot. Perhaps the PI market has a better insight into the minds of the FOS than advisers do.
It is time the FOS lived up to its claim of transparency and published the checklists it uses when examining cases. It can publish details of the qualifications and relevant experience of their adjudicators and ombudsmen in this specialist field too.
And before Nic Cicutti accuses me of being a “FOS hater”, let me reassure him I am not. The FOS has a vitally important role to play in consumer protection. I just have an expectation that their professional standards in identifying suitability are the same or greater than yours and mine. That is not too much to ask for, is it?
Nick Bamford is executive director at Informed Choice