Advisers have been long told that they should play to their strengths to take advantage of business opportunities and this is something that Pension Transfer Solutions managing director Carl Melvin has very much taken to heart. Creating a pension specialist alongside his IFA firm meant that he could branch out into specialist advice while still also offering full holistic service.
Ten years ago, he launched Pension Transfer Solutions, an AR of Melvin’s IFA, Affluent Financial Planning, which he set up in 1995. He says: “Ten years ago, not many IFAs had the G60 qualification and could not do pension transfers but I had so I offered the service to other IFAs’ clients. The problem was that IFAs felt uncomfortable referring their client to a rival adviser, so we set up Pension Transfer Solutions as an appointed representative of the IFA.”
Melvin says he had the qualifications to deal with niche pension cases that some IFAs try to avoid like the plague. As well as being able to transfer and consolidate pensions, he gained special qualifications from Resolution UK, which offers divorce financial planning exams and pension splitting advice for divorcing couples has become one of its biggest areas of business.
He says: “There are only a handful of IFAs with these sort of qualifications because you have to have pretty strong technical skills. Pensions are complex at the best of times but with legal implications it becomes quite seriously complicated.
Many advisers probably bodycheck divorce cases because they are so difficult.” Melvin readily admits that divorce cases are not “quick money” and come with a lot of baggage. “Divorces can be long, drawn out affairs and they can be quite torturous as you are dealing with people who once loved each other and now hate each other.”
He also says another big turn-off is the unavoidable need to deal with solicitors. While he gains many of his referrals from legal firms, Melvin admits they can be the biggest headache when trying to untangle pensions.
Melvin: Pensions are complex at the best of times but with legal implications it becomes quite seriously complicated. Many advisers probably bodycheck divorce cases because they are so difficult
He says: “The problem is you need to know what the assets are worth when the couple initially separates but many divorces may not happen for months or years later and it is very hard to work out how much a pension was worth several years ago. What should happen, and what most lawyers do not do, is to say ‘we must find out how big the cake is and add everything up from the outset’.”
Melvin says legal firms would save a lot of time and energy if they teamed up with IFAs and initiated predivorce financial assessments, allowing the adviser to find out how much the matrimonial assets were worth through a full audit before divorce proceedings take place.
Melvin has found that some cases rely on the cash equivalent transfer value as a measure of a defined-benefit pension asset but, depending on the type and size of the pension, this might be significantly less than the amount the pension is truly worth. He says: “A major concern is that pensions are valued incorrectly by the solicitor.
“The lawyers use the cash equivalent transfer value and do not realise that the cash equivalent does not accurately reflect the true value of the pension. Therefore, one party could be disadvantaged by thousands or hundreds of thousands of pounds because the pension was not dealt with correctly.”
Melvin predicts that there size of personal accounts may make pension divorce settlements a difficult issue for many divorcing couples.
He says: “If you have a £20,000 pension that must be split up, then you will not want to pay a few thousand pounds for the advice to make that happen.”
But regardless of the headaches and heartaches involved in divorce settlements, Melvin says dealing with pension splits has a lot of potential.
According to Government figures, there were 144,220 UK divorces in 2007 alone. “It can take months or years for a divorce to be finalised and an IFA must be paid every time they are involved in the case.
“Essentially, you are trying to achieve a fair financial settlement and pensions are just one element of the matrimonial assets. It just happens to be the most complex one and the one that is most difficult to value and separate. But it needs to be done. It is expensive and torturous but it has to be done and it can be lucrative for advisers.”