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Nic Cicutti: Advisers over-fearful of FOS decision-making on DB transfers

Clearer guidance is needed on how it assesses complaints, but the idea it’s out to get advisers is wrong.

It is always an accolade to be referred to by name by Nick Bamford, executive director at Informed Choice, an advice firm I have long admired.

So I suppose I should not be grumbling at the fact that, when he did so in a column for Money Marketing earlier this month, it was in the context of a suggestion I might consider him a “FOS hater”.

Bamford’s comment came at the conclusion of an interesting argument in which he queried how the Financial Ombudsman Service might assess complaints made about the suitability of advice given on defined benefit pension transfers.

As it happens, I do not think he is anti-FOS any more than he would assume I dislike the Ombudsman just because, as as I wrote recently, it is incapable of responding to journalistic inquiries in an open and transparent manner.

But I do have a concern about the way he bases his arguments on a succession of non-sequiturs, which only logically follow from the previous statement if your starting point is that of a conspiracy theorist.

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In his piece, Bamford asks how the FOS determines the suitability of pension transfers.

He starts by acknowledging the FCA’s default position is that DB transfers are likely to be unsuitable for most consumers. Therefore, the onus is “quite rightly” on advisers to prove that such a transfer is suitable.

He gives indicators as to what considerations might apply when advising a client on whether a DB transfer is worth considering: access to more tax-free cash, better inheritability of the capital value of benefits and the option of an earlier retirement are among those cited.

On the face of it, these are all factors to take into account, as is the calculated critical yield and the safety of the DB scheme itself. While the FCA would also look at critical yield, it would never be in isolation.

Say I had contacted Bamford six months ago as a 55-year-old member of the Carillion pension scheme, looking to retire early because I had had a quadruple heart bypass operation, was still refusing to give up the fags and wanted to leave some cash to the missus.

Critical yield would have been towards the bottom end of issues the FCA might be looking to consider when reviewing his advice to me.

Of course, as Bamford acknowledges, the advice process would need to be fully evidenced and well-documented, as I am sure it would be in his firm’s case.

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So given we know how the FCA would likely approach the issue, is there any evidence that the FOS operates differently to the regulator? Bamford’s stated assumption is that the FOS only looks at critical yield. Quite how he arrives at this conclusion is not clear.

He refers to a chat he once had with an adjudicator who told him that he always found in favour of the complainant in DB cases “because that’s what the Ombudsman would do”. This sounds very much like one of those “a guy I once met in a pub told me this story” conversations.

Based on this natter, which hardly seems very detailed or factually based, Bamford professes himself to be truly terrified at the poor quality of potential decision-making by the FOS.

His comments are intriguing, if only because the FOS itself has been at pains to try to reassure advisers that as long as they give “appropriate, tailored advice and clearly document the conversations they are having with clients” they should have nothing to fear.

The Ombudsman publishes case studies and maintains a database of its findings in various areas. As I indicated in a previous column, the database is next to useless if you are hoping for an easy search through its results.

However, by looking at dozens of case studies where it is possible to apply some of the findings to the issue of DB pension transfers, the evidence points to the fact that, while critical yield is a key measure that is used by the FOS in determining the suitability of advice, it is not the only one.

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Lower life expectancy was a factor considered in one case; inheritance issues in another.

One over-arching topic that comes up again and again is the suitability of the underlying investment advice in the context of the complainant’s stated risk profile. Does that, therefore, mean Bamford’s main argument about the FOS providing clear guidance on the way it assesses complaints brought on this issue is irrelevant? No, it does not.

I agree with him 100 per cent that “it is time the FOS lived up to its claim of transparency”. But what I want to see is samples of actual findings, where the rationale for decisions is given, so that we can form a wider picture than that provided by the static checklists Bamford is asking for.

Incidentally, if Bamford’s pessimistic view about the way the FOS assesses DB transfer complaints is correct, asking that its “professional standards in identifying suitability are the same or greater than yours and mine” strikes me as amazingly conservative.

Should advisers not be aiming far higher than that?

Nic Cicutti can be contacted at


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. So anyone who is experienced (and authorised) in pension transfers would always have done a ‘matching’ annuity quote first, then looked at the critical yield, then looked at the personal circumstances because that’s a sensible order in which to do it.

    This having first having obtained all scheme data, benefit statements etc that firms such as Crapita (for example and they’re not alone) seem reluctant to provide but one perseveres!

    Going back to G60 days, the mnemonic was ‘REGISTERED LAST’ which in my opinion still holds good. The fact that politicians, journalists and complianistas mess around with things (and usually make a mess of them) doesn’t change the reality that people need income.

    Just my thoughts!

  2. Hi Nic

    I don’t have a conspiracy theory about FOS I just think they are pretty useless. A group of people who don’t have the skill, experience, knowledge and qualifications to sit in judgement over firms who have. It would be a triumph over reality to expect them to accept that.

    I do though think the consumer deserves a FOS that is as well qualified as the Adviser community.

    Unlike the “guy in the pub” FOS has the conversation I referred to with the Adjudicator on record (they recorded the conversation) If you tried to record the guy in the pub I imagine he would deck you! 🙂

    You shouldn’t be so dismissive of checklists. “Checklists stop the dumb stuff from happening” (Atul Gawande The Checklist Manifesto – well worth a read) If FOS used checklists they could drive consistency and efficiency into all that they do.

    Your Carillion example is good. There are lots of nuances around DB transfer advice that needs to be considered.

    I am convinced though based on an actual case that critical yield and its relationship to investment attitude still dominates FOS thinking and decision making. It’s almost as if the past three years haven’t happened. They don’t seem to have a handle on sustainability of income drawdown and the other needs and wants of clients.

    At least we agree they need to be transparent but I’m not holding my breath.

    Adviser standards based on what I have seen exceed those of an amateurish organisation like FOS by a country mile

    It’s time for some senior FOS resignations if of course they have the integrity to do that again I’m not holding my breath

  3. I agree with Nick (Bamford)!
    The FCA seeks to achieve robust repeatable processes from its advisers and that should apply to the FOS too. Advisers shouldn’t live in fear of an Ombudsman’s decision but I suspect many do because it is unpredictable and therefore inconsistent. This would instantly be addressed by allowing their decisions to be challenged. At present what incentive do they have to get the decision right?
    The Channel 4 expose must be the catalyst for change otherwise the consumer will be the ultimate loser with advisers playing it ultra safe.
    Clearly the current situation is not fit for purpose and a sector predicated on fairness must apply equally to advisers to avoid the charge of hypocrisy.

    • I agree – robust repeatable processes should apply to the FOS too. In law that would of course be referred to as “precedent” instead we have DRN notices that mnay of us read to try to get a “feel for” and whislt we might agree with 80% of the decisions, the 20% we disagree with can often be putting a firm out of business where the fault is just the opinion of an individual.

  4. James Marchant 6th April 2018 at 9:34 am

    I had an interesting meeting with our PI insurer not so long back. We were very keen to understand their position on DB transfers and also wished to explain our process so they understood how we go about writing this type of business.

    During the conversation with the underwriter he talked about numerous ‘perverse’ FOS decisions that they have seen over recent years. In one particular case he said he was so sorry for the IFA who in his opinion had been on the end of a particularly ‘perverse’ FOS decision.

    Unfortunately Nic it’s information and stories like this coming from reputable sources that cause IFAs such concern about FOS and how they adjudicate on complaints.

    I also share Nick Bamford’s view that staff working within FOS should be equally qualified to the advisers that they adjudicate on. It’s quite frankly outrageous that non qualified, non industry people can be working in an organisation which has so much power over the advice community.

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