Since pension freedoms and choice was announced, demand for defined benefit transfer advice has risen sharply, with no reduction in complexity, cost or risk. If anything, greater retirement flexibilities have brought more variables and less certainty around advice.
The temptation to take a short cut to process volume is great. DB pots offer probably the single biggest opportunity to quickly acquire significant assets under management right now, and we will inevitably see further regulatory intervention over the years to come.
There are plenty of product and asset managers also desperate for these assets who are pushing for more transfer business without accepting any of the liability which comes with it.
There is no desire from them to contribute to Financial Services Compensation Scheme levies in this area despite being significant beneficiaries of it.
“There are plenty of product and asset managers also desperate for these assets who are pushing for more transfer business without accepting any of the liability which comes with it.”
Why you need to look at cashflow
I struggle to see how it is possible to demonstrate a transfer provides a sustainable solution well into retirement, and achieves a client’s overall financial goals, without some form of lifetime cashflow in place.
Given cashflow modelling is still a minority sport in advice, I can only conclude that either a lot of advisers are dealing with “no-brainer” transfers where the numbers make a more formal cashflow an academic exercise, or there are a lot of simplistic reports being produced.
Most poor advice will come from a minority of advisers, but that might be enough to provoke professional indemnity insurers into removing cover for transfers for everyone, regardless of the quality of advice. This would put a stop to future transfers, with implications for existing DB schemes, and the Government’s freedom and choice agenda.
With this in mind it is hard to imagine the regulator not looking at any firm processing significant volumes for any evidence of poor practice. That said, I have seen some of the best examples of financial planning come from well-constructed DB transfer advice.
The regulator faces a difficult choice. Does it put more resources into “best practice” policy, or supervising poor advice? We have seen no real progress on a revised transfer value analysis calculation. Is it able to prevent a problem many predicted years ago?