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Nick Bamford: Is the FOS trying to catch us out on DB transfers?

Nick BamfordIt 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”.

/g/b/r/FOSFinancialOmbudsmanService.jpgThis 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



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There are 25 comments at the moment, we would love to hear your opinion too.

  1. Nick the first decent and constructive article you have put together ever. Good on you and yes the FOS use a tick box approach with low calibre adjudicators and ombudsmen and that’s one of the biggest problems everyone has outside of their four walls. Secondly they make the rules up as they go along whilst circumventing the UK law. The combination of the above leads to unjust decisions.

  2. Well written. Nothing contentious or complicated here, Nick is bang on. We need to know what good looks like if we are to display best practice and if we are to spread the good word.

  3. Neil Liversidge 6th March 2018 at 12:05 pm

    We used to get ‘Ombudsman News’ from the FOS and actually found it both interesting and valuable, but it stopped a while ago for no apparent reason and with no notification as to the fact or reason for its cessation; certainly none of which I’m aware, at least. I’m just in the process now of getting the missed back-copies as an aid to a study I’m doing on the FOS’s decision-making. Has anyone else found that their copy similarly stopped?

    • Great article and could not agree more.

      The fact is all advisers advising on DB transfers are effectively playing three card brag, with no upper limit and playing blind. With no clear rules or guidance from any regulatory body.

      From the regulators point of view this may seem a perfect situation, as they can then move their position to suit the markets mood. What they have not considered is that with PI insurers exiting, MP’s, TSC, FCA and media all reporting with no balance or clarity, the eventual outcome will be advisers will and are refusing to advise in this area.

      No one has a crystal ball and knows what the future holds. The client has an unfair advantage at this time and this I believe suits the powers that be. They have their the penny and the bun.

      The only way to force change will not happen. This will only ever be achieved when EVERY adviser refuses to advise on any secure benefit pension until clarity is provided by the FCA and FOS. This will never happen as advisers never seem to be able to unite and the FCA and FOS are masters of making sure they cannot be held accountable having insured they can point deflect all blame on advisers.

      Advisers are in a catch 22, one that has gone on for far to long.

    • Yes Neil they have stopped as you say with no explanation.

  4. Robert Milligan 6th March 2018 at 12:06 pm

    When I was at school, many years ago! if I was to learn from my mistakes we were made to write for an hour a line which reminded me what I had got wrong, mostly several hundred times, What we need is a hand written letter from the client confirming their understanding of the advice and recommendation, Ie as in an “exam” Ask the question and get the client to personally write in the box their understanding of the sections of advice and explanation of their decision in following our advice, then and only then will you have a hand written response from the client confirming their own rational and confirmation by them to agreeing with the transaction. Basically, an Exam completed by the client in their own handwriting, Yes I know, getting the client to do this would be financially unviable. But at least a set of Industry Question responded to by the client, should stop a lot of the “I Never Knew That” complaint!

  5. A well written and thought provoking article, highlighting yet again that FOS adjudicators all too often do things pretty much however they want.

  6. Never mind the Financial Ombudsman Service (FOS) coming out with a checklist. It should be the Financial Conduct Authority (FCA) who should be stating what suitable advice look like for defined benefit (DB) pension transfers.

    They keep drip feeding bits of information in relation to DB pension transfers but have come up with no comprehensive guidance as to what they are looking for to make the advice suitable. As such advisers are left to try and work out what they think suitable advice is.

    Surprise, surprise some of them will get it right but others will get it wrong. As the regulator the FCA should want advisers to get it right first time. If that is to be the case they should actually tell them what they expect to see in relation to suitable cases.

    • Yes but the problem is the FOS ignore all the FCA rules and make their very own up!

      • That is another point. We have three bodies the FCA, FOS and the FSCS who are all there to protect consumers. Yet they all seem to sing from different hymn sheets. You would think that they would all co-operate to ensure consistency across the board. Yet they all seem to want to have their own empire and do things differently from each other.

  7. Julian Stevens 6th March 2018 at 4:28 pm

    Show me six lines…

  8. What are ‘professional standards’? 100 advisers will give you 200 different solutions. If the FOS still uses their ‘decision tree’ it makes automatic assumptions and the outcome it pretty rigid.

    • Thanks Evan. At the moment I suggest the PFS best practice guide offers the best outline of the required standards but I suspect the regulatory world is pretty ignorant of that guide

  9. Yes a good article and we all have concerns about a proportion of the FOS decisions.
    The publushing of FOS decision notices is useful and I tend to end up agreeing with teh conclusion of teh FOS in about 80% of the cases upheld against advisers and firms, it is the 20% of cases I disagree with which seriously concern me as the logic behind their decision is never clarified sufficiently for my mind, which implies there is something not mentioned in the decision which results in a complaint being upheld.
    There needs to be some kind of industry peer review body of FOS decisions, with a seelcted proportion of those where the peer group disagree with teh FOS decision, being reviewed in detail face to face between the “peer panel” and the Ombundsman and eitehr lessons learnt which can be implimented if it for the FOS staff and precedent guidance documented.
    Those of us forced to study case law as part of previous exam systems (Chartered Institute of bankers in my case)probably find this whole lack of precedent setting from FOS cases completely impossible to work without, hence why we don’t do DB advice at all as however the FCA think they amke the rules, it is the FOS who enforced decisions which may “take into account” the rules, but don’t have to follow them!!!

    • Hi Philip

      I’m not convinced the content of the FOS determination letters are a good way to determine whether their conclusions are good/bad/indifferent. I reckon we would need to read the whole file to get close to that.

      If you disagree with 1in 5 of their determinations that in itself should be a major concern


  10. I think the thing that upsets me more than anything about FOS )and the FCA) is, I have spent years (27), interacting with client honing my people skills training taking exams preparing for RDR, Mifid2, dragged myself across the quagmire that is compliance
    I know a lot of you have too.

    And yet my work is scrutinized and pulled apart by people who, don’t have much (real)industry experience, don’t have any or maybe a few industry exams, and probably don’t the necessary people skills (like us) to actually fact find ?

    Just because you may have worked for a life office 10 years ago bares no resemblance in today’s market, just because you may have a PHD, or uni degree of some sort hardly qualifies them to deal and make judgement on what takes years of hard graft and a near vertical learning curve.
    After all these years I have never stopped learning and will continue to do so.

    All this is akin to some-one who has just passed his driving test lecturing Nigel Mansell how to race a car….. when in all honesty Nigel has forgotten more than said oik will ever know !

    • While I’m broadly sympathetic to this point of view (having been both sides of the fence, and also having sat on said fence as a consultant), unfortunately it doesn’t alter the fact that a few advisers out there are less like Nigel Mansell and more like Maureen Rees from Driving School…

  11. I think the article (and many of the comments) miss a key point. Advisers know better than anyone that client circumstances are individual. Hence judgements regarding the suitability of a solution is entirely dependent on the individual’s circumstances. A checklist cannot cover the range and subtleties of the client circumstances and objectives. All a checklist can do is to assess whether the correct process has been followed. But this just checks the process not the outcome and it is the suitability outcome that FOS and FCA check.

    • Rory, in order to truly assess suitability in the way you claim you would need to be both qualified and have appropriate experience.

      I humbly suggest that is not the situation in most cases where the FCA and FOS purport to stand in judgement.

    • Elizabeth D'Costa 9th March 2018 at 2:15 pm

      I think there is a difference between the intended outcome (at the time of the advice) and the actual outcome.

      It cannot be assessed with the benefit of hindsight which is where I imagine these comments are based.

      A checklist cannot replace the qualifications and experience of a practitioner, neither should it replace the rules set out in FSMA, nor should it.

      The FCA and the FSA have an entirely difference approach, based on a different set of criteria, and until that gap is closed, this debate will continue.

      Dispatches on Monday will be interesting.

    • Rory

      I agree entirely that it is about the individual circumstances and that advisers know those circumstances better than the regulator (FOS or FCA). Unfortunately FOS is not taking client circumstances into account. They focus solely on a relationship between critical yield and attitude to risk something that you have stated in another publication “is completely missing the point”

      My request for sight of their checklist is simply to evidence that they are considering all of the suitability points.

      I suspect no such checklist exists for the reasons given in my article.

      Today’s news about the wider failings within FOS confirms my thinking

    • Rory

      And on your final point FOS and FCA do not check on suitability their focus is far too narrow to consider the “range and subtleties” you describe

      They use a critical yield/ ATR traffic light system and little else. And I have evidence if you would like to see it?


  12. I suspect there is no checklist as 1. if there was, unscrupulous advisers would tweek their FF’s / SR’s etc. to include the “right” points 2. lots more transfers would go through, which is not what the Regulators ( en masse ? ) seem to want . . . and 3. Regulators get the chance to “flip flop” around their decisions with no comeback, a bit like parts of Tax law . . . a famous line from ( I think ) the Trade Unionists in ” Hitchhikers Guide . . . ” we demand laid down specified areas of uncertainty . . “

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