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Transfer advice has become impossible

I have recently been involved with yet another complaint, which has been referred to the Financial Ombudsman.
I specialise in transfers of occupational pension schemes, and I am now of the opinion that it is not possible to give advice in this area and be compliant.
It may be of interest to other IFAs working in the transfer market that the ombudsman’ view of advice on transfers, is that where the critical rate of growth is in excess of the FSA upper rate of growth guidelines of 9 per cent, there is no situation where the client should be recommended to transfer.
In other words, if we recommend a transfer with a CRG above 9 per cent, the transfer is deemed non-compliant. This is regardless of the reasons, whether it be death benefits, early retirement and so on. It is the ombudsman’ view that such cases can only be dealt with on an insistent client or execution-only basis.
Why should IFAs shun from giving advice on cases where there are obvious advantages to the client. Will it now be the case of saying to a client: “Well these are the reasons to transfer but sorry I can not recommend this course of action, because the CRG is too high.”
The further complication is that our regulators state we should not do more than 1 per cent of insistent client business. Where does this leave our clients? Do I have to say: “You will have to go to another IFA who has not transacted any insistent client business lately.”
On asking the ombudsman, the question about the limits on insistent client business, they stated: “They are not concerned about the regulator’ limits and only look at cases on merit”.
Well, I am sorry they are the FSA ombudsman and there should be some interaction between departments.
It would seem, and call me sceptical if you like, that every time there is a fall in the market, clients are going to complain. This is fair enough if the risks are not explained to them, but if the only measuring stick the ombudsman is going to use is the CRG, what is the point of taking advice?
As a final point on transfers, I recently arranged a transfer from a scheme where the CRG was 13 per cent. This was after the above ombudsman’ ruling was made.
On recent consultations, the client had been advised over the last couple of years not to transfer due to the high CRG. On closer examination of the scheme assets, it was clear that the scheme was just commencing winding up, as the employer no longer existed.
The scheme was under-funded and had no means of increasing the value of the funds under management. In addition, the fund managers were taking a defensive stance, thus no chance of the fund increasing with market recovery.
The pension fund overall was 12 per cent underfunded on a fund of £30m. Pensioners accounted for £20m of the fund and deferred members £10m.
On wind-up, the scheme had to purchase full benefits for the pensioners and that would mean that the scheme would carry for each deferred member a deficit of 36 per cent, using simple maths.
So what are we to do? Get sued by clients for recommending a transfer above a CRG of 9 per cent or get sued for transfer advice of “do not move” when the client finds that his “wind-up” benefits are substantially reduced.
IFAs cannot win in this particular case and it is time for some guidance.
As it happens, I did go ahead and recommended the transfer with a clear list of the reasons. I can only hope that this client is honest in the future if he finds that he has lost money due to market fluctuations.
The next issue is that of ombudsman fees. I am the first to state here and now that every client holds the right to a review of his or her business. This review follows the proper procedure and results in either an acceptance or a rejection of the claim.
However, the media coverage of pension misselling and endowment scares means that more and more of the American way of life is creeping in to our society. This is where clients do not care if they knew what they were doing at the time as long as there is a buck in it for them now.
Furthermore, the like of the mighty Which? even has a letter prepopulated on its website for anyone who wants to makie a complaint. We obviously reject claims where there is evidence the client is not telling the truth. However, clients still have the opportunity to go the ombudsman.
This is where it gets silly. Out of 20 complaints in the last two years, we have never had an endowment claim found in favour of the client, yet we have to pay out fees of over £6,000 just for the clients to have a second opinion. Where will this all stop? The IFA’ days are numbered I believe.
IFAs havePI insurance problems. We have the FSA talking all the time about more costs and expenses, we have the media stirring up clients without looking at the work that goes on in a adviser/client relationship and we have the clients who just do not give a damn anymore, they just want what is in it for them.
Then we have to find a way of running a business, effectively and with a profit(yes, that is that nasty word that the media, the Government and the FSA do not believe in). These costs have to be dragged in to a charging structure to be imposed on our loyal clients (yes there are some) and then give them what is supposed to be value for money.
Well, I believe that we would drastically reduce our costs if we all started taking a moral stance – advisers, the FSA and clients alike. Let us stop trying to stitch each other up and remember that most of us actually do give advice with the best of intentions while trying to keep the status quo.
By doing this, the costs on contracts would reduce, income to IFAs would fall and yes profit would increase.
It is time to close the open chequebook. It is time to repair the dam wall instead of having a little Dutch boy with his finger in it and it is time the media stood up and took the can for all the problems they have caused over many, many years.
I could write for hours on this subject, but a warning to all IFAs – watch your back, because nobody else will.

Norman English
Partner, Wade & Associates,
North Shields,
Tyne and Wear

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Spot on! Working in network compliance, trying to assess cases according to an FSA perspective; I am frequently baffled by the discrepancy between upheld complaints and “guidence”. The guidence is too vague, and the judgements too strict.

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