There is huge variation in what clients can expect when approaching advisers to talk about pension transfers. But is standardisation the answer?
When a client, or potential client, walks through the door holding a pension transfer value quotation, an adviser can be in a difficult position.
It is hard enough if they are a complete stranger but if they are someone with whom you already have an existing relationship, it can be a real challenge to overcome their desire to transfer when you do not believe it is in their best interests.
In principle, one way to avoid a client spending thousands of pounds only to be told it is a bad idea to transfer is some sort of triage process.
It ought to be possible for an adviser to share an initial view as to whether a full assessment of a potential transfer is worth undertaking. But there is a danger this could become much more difficult in light of an FCA review due to conclude this autumn.
The regulator is concerned that some existing triage processes stray over the boundary into advice, yet without all the processes and documentation that would normally come with it. It is keen for any process to be entirely generic and not specific to the client’s individual circumstances.
Perhaps this approach makes sense if you are a regulator but surely a member of the public would be baffled to be told their adviser’s initial response could not be shaped by their personal situation.
As part of a forthcoming paper with pension consultants Lane Clark & Peacock, we recently surveyed 400 advisers about various aspects of the pension transfer process, including triage. The results were rather startling. Around two thirds said they had some sort of triage process in place for when a client (potential or existing) approached them about a pension transfer. But what they meant by this varied enormously.
First, we asked what proportion of clients were “weeded out” by the initial triage process. The answers ranged from “virtually none” to “virtually all”.
Some took such a robust approach and were so convinced transfers were generally a bad idea that only the most determined clients with a powerful case even made it through to advice.
Others had such a light-touch introductory process that no client, no matter how unsuitable the transfer might prove to be, was weeded out at this stage.
Second, we asked what the triage process included. Some advisers stuck very closely to the FCA’s latest reminder and said theirs was entirely non-specific, consisting only of an initial factual conversation and sharing perhaps a video or standard guide to the pros and cons of transfers. Others talked about spreadsheets, cash flow modelling and transfer analyses being included in theirs.
The findings suggest there is massive variation in what a client can expect when they walk through the door of an advice firm wanting a conversation about a transfer.
Avoid a clamp down
While some standardisation of process might be a good thing, I would be very concerned if the result in terms of regulation was a big clampdown on advisers having meaningful conversations with those interested in transferring.
It cannot be in a client’s best interest for this initial engagement to be so general that even manifestly unsuitable cases progress through to full advice.
This puts the adviser in a difficult position and is unlikely to leave the client very satisfied either.
What is needed is some sort of safe harbour, where an adviser can use their expertise to form an initial view of whether a transfer is likely to make sense.
In particular, they should be able to flag those cases where all the warning lights are flashing.
While every case is unique, surely an adviser should be able to say to a client that, in similar cases, they have consistently recommended against a transfer, and that while they would be willing to undertake a full advice process, it is highly unlikely to lead to a recommendation to transfer?
Regulatory purity and consistency has its advantages but I do hope any final recommendations from the FCA do not prevent such a process.
Steve Webb is director of policy at Royal London