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Regulator asks advisers for help on DB transfer charging

Lesley TitcombeThe Pensions Regulator wants advisers to suggest ways to charge for defined benefit transfer advice on pots that are just over the £30,000 advice threshold.

Speaking at the Investment Association Annual Policy conference, TPR chief executive Lesley Titcomb discussed the need for more cost-effective financial advice, particularly when it comes to DB transfers.

Henry Tapper: ‘We’ve really made a mess of DB transfers’

Titcomb says: “We have a particular issue in the occupational pensions world with the requirement of people to take advice on a DB transfer that invoices more than £30,000, yet they are probably being charged between £1,000 to £2,000 minimum for the privilege of paying for that advice, which is a very difficult position to put them in. We are looking to the industry to develop new techniques.”

She adds there is also a need for more advisers due to a lot of the profession approaching retirement.

Titcomb also called on the pensions industry to make sure the pensions dashboard operates in the interest of savers and isn’t “seized by vested interests”.

The Department for Work and Pensions is aiming to launch the pensions dashboard in 2019, allowing savers to see all of the retirement pots from different employers in one place.

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Comments

There are 24 comments at the moment, we would love to hear your opinion too.

  1. Quite simply put, even at £1 to £2k, anyone providing advice is either not assessing it and covering it sufficiently well to meet regulatory standards, or they are losing money.

    I would suggest that maybe there should be a “window” of value, between say £30k and £100k, where a “lower” standard of research and evidence may be required, simply because that pension is not going to make a huge difference to anyone’s lives if the income promised is less than £2-£3kpa.

    Maybe make the window based on the income levels promised and make it so that the client only has to receive “guidance”, rather than a personal recommendation before they are allowed to instruct a transfer.

    However under the current rules, our minimum fee for DB transfers is £3k+ (dependant on a variety of factors) and at anything much less than that we would not make any profit, so why would be do it?

    The only way around that issue is either through automation, or by accepting that clients should have the option to be able to take some responsibility for themselves.

    • The assumption that if the pot is between 30k and 100k it is “not going to make a huge difference” is sweeping. It could still form a critical part of somebodies retirement income and so saying it shouldn’t have to be reviewed as stringently isn’t an acceptable solution.

  2. John Hutton-Attenborough 27th June 2018 at 9:44 am

    My firm does not charge on the amount which is being invested/ transferred. We charge on the time it takes to complete the full process (triage/ analysis/ TVAS/ explore other influencing factors/ decide yes or no/ provide comprehensive report/ sit down with clients and discuss all of the above/ factor in risk premium for DB transfer and regulatory risk/ Pension Transfer Specialist involvement/ Compliance involvement/ Third party involvement). All of that costs money and the answer could be and often is “No”.
    There are no easy transfers or short cuts.

  3. The cost are so high due to the FOS and the FCA pulling in to different directions. This in turn has meant most PI Insurance companies have pulled cover, or put in place £100,000 access and a premium of up to £375 per DB case, payable every year as there is no legal long stop. Then add that if a fee is charged you are liable if you do or don’t advise for or against, you have a no win situation.

    Based on these liabilities and uncertainties an adviser would be out of business should he take on such business. The PI costs charged every year for each case means this work cannot be undertaken easily or cost effectively.

    The industry has been advising a solution for many years, but no one wishes to listen. Replace PI Insurance with a single, one off advise premium, which can then be factored in to the cost per case, shown clearly. The cost could be paid either by the client, upfront, removing issues such as contingent charging and biased advise.

    You cannot expect advisers to provide advise, then hold them to accountable with no legal long stop, an annual PI cost as long as they are in business and think it can be achieved at low cost.

    Based on the current situation any adviser in this area is very unlikely to even consider advising.

    This problem is about to spread to all DB Pension advise, not just small pots.

  4. While the rules demand that full and comprehensive advice is given in every case I cannot see how the price can fall, unless we cross subsidise which was outlawed with RDR. I can fully understand why there is a premium fee for advising on high risk business, the British Steel debacle has spilt blood in the water and sharks are circling.

    At every turn there is pressure on advisers to solve problems not of their own making, I am all for simplified solutions but this must come from the people who make the rules and protect advisers as well as consumers.

  5. Terry Mullender 27th June 2018 at 10:55 am

    Raise the 30K advice threshold to 50K. Simples!

    • Referring to Duncan Gafney’s post above (and, FTR, I think his firm’s approach is the ONLY one above reasonable criticism), raising the threshold to £50K isn’t likely to make any appreciable difference.

  6. I’d like to propose a more cost effective Ferrari.

    Still all the features, benefits, performance, whistles and bells of the full cost Ferarri – just more cost effective.

    I’d like a Ferarri, don’t want to pay the cost of a Ferarri so I’m going to speak to the Competitions and Markets Authority and demand a cheaper Ferarri.

  7. What a load of tosh!!!!!! What on earth is a regulator getting involved with what a firm charges for doing business? They (regulators generally) put in the rules that impacts adviser costs hugely (which the client ultimately pays) and then want help from these firms to try to make advice cheaper for what is a very risky line of business from a regulatory point of view. What a pathetic state of affairs we have to deal with but not surprising tosh coming from a quango style organisation.

    The regulator cannot protect all of the people all of the time and the sooner it recognises this the better. It would rather be criticised for making it too expensive for advisers to provide a service to these people than take flack for letting some people take stupid courses of action.

    With people like this having ideas like this, we are all doomed

  8. Here’s an idea on how to get costs down, and it doesn’t involve advisers.

    All DB schemes should be compelled to provide ALL of the relevant data that an adviser needs to give DB advice, after only one request, and in one document.

    Perhaps TPR, FCA and the PFS can get their heads together and get something sorted.

  9. Save time and energy on debating this. Put bluntly, we are regulated professionals who MUST ALWAYS adhere to the standards set by our regulator. This takes time and money.

    Pro bono was effectively done away with in 2013 (although I am sure we all still do plenty of it, but not for complex matters such as DB work!)

  10. This is not a problem created by advisers and we equally have no power to fix it.
    Advice firms do not have an “advice-lite” option under the regulations. Regulated advice must always be “suitable” and always carries FULL liability. Likewise PI insurers have no obligation to do anything other than run their own businesses commercially and see the risk as requiring substantial premiums indefinitely.
    In these circumstances there can be no new “techniques” as Lesley refers to them as you can’t short cut anything.
    Firstly, why not just remove the obligation for clients to HAVE to take advice? Financial advice really is the most “nannied” of all industries; through our lives we all spend thousands on eg holidays, cars etc with no legal obligation to take advice, despite the savings or improvements that might offer; worse still, we could (if we were bonkers) spend £750k cash on a house with no legal obligation to have a full survey done, eventually losing £250k when subsidence comes to light 3 months down the track…and yet we aren’t allowed the same freedom to make a poor (subjective of course) choice on a pension pot worth £35k. That’s just massive over regulation in action.
    Secondly, if we can’t stop nannying the public, then at least allow/encourage/legislate for the DB schemes themselves to pay for advice to members. The Pension Trustees could presumably agree a special terms bulk deal with an IFA who could then work more cost effectively knowing they’d get all the enquiries from that one scheme, plus the full info would be there at outset and they’d have a direct line into the scheme to answer queries etc…plus the advisers fees (regardless of the advice outcome) would be paid by the Pension Scheme who would then cover the costs of this advice through the ongoing pension funding and scheme asset growth, ultimately meaning the bills would fall to the funding employer if necessary
    It would mean ALL clients would have access to advice, it would ALWAYS be NON-contingent, overall fees would be much lower (cost effective and IFA competition to be each schemes adviser), the due dil on the IFA firms would be extensive and standards would be high and in the end the costs of helping the member with their pension choices is falling on the scheme and/or sponsoring employer. Not an inappropriate outcome surely??

    • “we could (if we were bonkers) spend £750k cash on a house with no legal obligation to have a full survey done, eventually losing £250k when subsidence comes to light 3 months down the track…”

      But if you were buying a house you’d *have* to engage a legal professional for the conveyancing and they’d advise you that your course of action is foolhardy and reckless. Remarkably similar to how mandatory DB transfer advice is working in practice, in fact.

  11. The costs of advice are high, we have to pay for people like Lesley, her subsidized canteen, the artwork etc etc

  12. DB schemes are an endangered species already. Anything that increases their costs, such as funding IFA’s can only make things worse.

  13. Here you go Lesley, as I see it you have 5 options:

    1. Accept the requirements are onerous and expensive. As somebody said there are no easy shortcuts.

    2. Reduce the requirements and likely the quality of advice. Can’t see this as a step in the right direction especially looking at the BSPS.

    3. Remove the future liability from advisers in some way. Unlikely, someone will always have to pay and there is no incentive to ensure suitability better than some some liability.

    4. Allow ‘pension wise’ guidance on DB transfers and remove advice rule. Do PW have the capacity and knowledge needed?

    5. Raise the limit to £100k prevent sub £100k transfers to anything but a normal SHP or PP.

    It strikes me that people make bad decisions on DB transfers partly as they don’t understand the cost of buying the same income from a PP. So change the way information is presented in CETV packs so that it clearly states to the client the CETV is based upon the assumption that at NRA the ceding scheme would have needed a pot of £x to purchase a guarantee for these benefits. Those blinded by a large transfer value are then more likely to appreciate what they are giving up.

    Also name and shame bad scheme administrators who take too long to respond to simple information requests yet will only guarantee their figures for 3 months. They should also be providing their information in a format that can be easily understood by the scheme member.

  14. TPR don’t regulate IFAs. If there is concern about charging for pots of just over £30k, increase the figure to £40k. There is no way an Adviser will give the detailed advice required for transfers of Safeguarded Rights at a cut down price while there is a lifelong liability for that advice.

  15. I hope Lesley Titcomeb is reading the comments above as she has all the potential solutions/answers she just needs to agree rules with her friends at teh FCA and Treasury and implement a selection of them and if she doesn’t….. (as we know they will not as they’ll continue to blame advisers for the problems of their own making) explain why they didn’t when solutions were suggested and have been for DECADES.

  16. A conundrum indeed !

    On one hand a time based cost would be quite easy to establish, on a typical DB transfer …..

    But how does one factor in ancillary cost ? on the likely fact your PI may well double ? triple ? multiply 10 fold ? and what about the extra reporting, possible S166 when the regulator questions your methodologies

    What could be a fair charge one day, would be found wanting by the week after !

  17. Shortly there will be no advisers offering DBT advice at all as they will not get PII. The lack of clarity from the regulators about what ‘good’ looks like means that insurers cannot tell good advice from bad. Government, arbitrators and regulators please join up!

  18. This is more evidence of the predictable, abject and unremitting failure of regulationism and the compo culture engendered by self serving bureaucrats engaging in their usual technique of concentrating benefits and distributing costs. All overlain by bleedin’ heart anti capitalist social justice warriors.
    We have an issue with DB transfers because of the original intervention in the late 80’s that schemes must provide CETV’s for those members who wish them. This is an intervention in the sanctity of private contract.
    This intervention then triggered the pensions transfer debacle where many CETV’s were advised on in ignorance more than malice.
    Then we have the FSMA2000 which proto-nationalised FS and has given overweening power to self serving bureaucrats to make sanctions based on 20:20 hindsight and a ‘consumer protection’ agenda. This latter has made DB advice uninsureable as far as PI goes.
    The answer is obvious, scrap regulationism by state bureaucrat and return to the Rule of Law. The Rule of law will operate in the market to protect clients from poor advice. Market knowledge will protect clients from rogues. Effective trade associations (as we used to have) will ensure good standards.
    The problem is without any doubt regulationism. The pensions Regulator is the problem not the solution. (BTW I have an active DC to DC case where the TPA rules and ignorant interventions have combined to prevent the case completing for about 8 months – details on request).
    Regulationism has failed and the DB transfer issues are evidence of that failure.

  19. Julian Stevens 4th July 2018 at 9:03 am

    How about accepting a few simple realities such as:-

    1. The notional value of such benefits makes no difference to the cost of advising on them (properly), so

    2. advisers aren’t going to cut their charges in respect of a CETV of £31,000 as opposed to £310,000.

    3. Those with benefits whose value is at the lower end of the scale will just have to accept that the cost of taking advice on them is disproportionate relative to the possible advantages of transferring, and that

    4. by staying put, they’re unlikely to be any worse off.

    As in so many areas, the regulator appears to be constitutionally incapable of grasping the concept of a pragmatic approach. The very word pragmatic just isn’t in their vocabulary.

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