I was interested to read a Financial Ombudsman Service case lately, where a potential client approached a firm for pension transfer advice but the firm decided against advising them.
Unfortunately, a delay in the firm making that decision resulted in the cash equivalent transfer value timing out, meaning there was no time left for the subsequent adviser who did agree to provide advice.
The first advice firm should have declined without delay, that is for sure, but even if they had, I doubt there was enough time left anyway, especially if the information from the defined benefit scheme was insufficient. A 90-day turnaround is all very well if the CETV is emailed to the member on the date calculated and the member then forwards it to a chosen adviser straight away. But we all know that is not often the case.
For starters, the CETV is 10 to 15 days old by the time the member receives it by post. They then may take up to 30 days to select an adviser, leaving us 50 per cent of the 90 days left for further information gathering and clarification delays. We may have as little as 10 days left to draft a report.
Ideally, people should find an adviser, then apply for the CETV, but that is not the norm.
In the case outlined here, the person’s CETV dropped. But what would have happened if the firm had gone ahead, only then to discover the CETV had gone higher? Would that have been a valid complaint?
A CETV is a snapshot in time; it is based on current assumptions. It is no different from getting a fund value on a defined contribution scheme. If we are to see more cases like this, then it is essential advisers clearly state something like the following on all DB transfer cases: “We have no way of predicting whether we can complete this case in 90 days. Therefore, you must be prepared to ask and pay for a new transfer value, which may or may not be more or less than the one you have at present.”
We find ourselves in a complaint culture, partly fuelled by the FOS’s ability to ignore common law.
There is no doubt that firms need to be careful how they advise in this area, and that extends to all aspects of DB activity, whether that be triage, the advice itself or declining to advise (as long as we do that without delay).
Professional indemnity insurance costs continue to rise too. This reminds me of a statement made by ex-US president George W Bush to people complaining about the cost of medical treatment in the country.
Doctors were paying 50 per cent of their entire turnover in negligence cover and Bush suggested that, if patients held back from suing them for the slightest thing, the cost of treatment would fall.
The same could be said about the costs from the FOS and Financial Services Compensation Scheme regarding the price of advice.
Rob Reid is principal of CanScot Solutions