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What a shoddy piece of pension switching research

Sometimes a report comes along that challenges traditional thinking and forces the industry to take a long hard look at itself. Think Ned Cazalet’s Polly Put the Kettle On, a piece of research which clearly and insightfully articulated how the life and pensions market was tearing itself apart in its desire to win new business at all costs.

And then there are reports like the one published this morning by the Government-backed quango Consumer Focus on pension “churning”. A report so lacking in quality analysis, so deficient in statistical evidence and so eager to jump to screaming headline conclusions based on the flimsiest of arguments that, as a journalist, you are loathed to offer it even the smallest sliver of publicity.

But, I think it is important to highlight when a taxpayer-funded body attempts to lead policy debate in such a ridiculous way, especially when it manages to garner such a large number of headlines in the consumer press (a quick search on google news makes for depressing reading).

Consumer Focus’s report, Is it advisable?, is a truly shocking piece of industry research. It adds nothing new to the important subject of pension charges, trail commission and switching behaviour. Instead, it pieces together previously published research from the FSA from 2008 and 2010 alongside the extrapolation of a tiny sample of IFA client cases to make grand speculative claims about the behaviour of a whole industry.

The central conclusion of the report is that IFAs and the trail commission they receive are responsible an unacceptable level of pension churning which leads their clients into high charging funds, a problem that will continue post-RDR.

To reach such a definitive view on the standards of a profession that numbers around 30,000 you would expect a pretty comprehensive and rigorous piece of research to have taken place. Well, no. Consumer Focus looked at 31 examples of client correspondence emanating from two IFA networks over a 10 year period. What planet are these people living on?

The report rehashes the findings of the FSA’s report into pension switching in 2008 and follow-up work in 2010. The 2008 report found that 16 per cent of files from 500 cases involving 30 firms, including IFAs, multi-tied and tied firms, showed poor advice. We know this 16 per cent figure was skewed upwards by the inclusion of at least one poor performing high-street bank. For some reason the Consumer Focus report only focuses on the behaviour of IFAs and leaves the false impression the FSA work was only referring to IFAs.

The Consumer Focus report suggests that since this work was conducted “it is far from clear that the situation has improved”. Reading on, the basis of this statement appears to be the already mentioned research of 31 pieces of business conducted by IFAs between 2000 and 2010. Hardly compelling evidence.

Later in the report, Consumer Focus uses the FSA’s RMAR figures to suggest IFAs received £2.7bn of gross revenue in 2009. A footnote alongside the research reads “The FSA’s RMAR uses the category ‘financial adviser’ which we assume roughly corresponds to IFA”. A quick phone call to the FSA confirms that this is a very wrong assumption to make as this category takes into account tied and multi-tied advisers. Consumer Focus really should not be making such basic mistakes.

Another headline conclusion of the report is that levels of trail commission are increasing in the run-up to RDR as firms look to take advantage of the last few years before commission is abolished. The FSA has raised concerns about a so-called commission “closing down” sale and it is right that these worries are taken seriously.

It is important that any market manipulation in the run-up to 2013 at the expense of clients is stamped out. However, Consumer Focus provides not a single piece of evidence that this is actually taking place. It just presumes it is with the statement: “We think many of the worries voiced by the FSA are already in evidence in parts of the market”.

It repeats a statistic that pension companies pay IFAs between £200m and £800m of commission a year, of which it estimates a quarter is trail. This appears to be the “hard evidence” that levels of trail commission are increasing. There is no attempt to put this figure into historical perspective or offer any statistics about how levels of trail commission are actually going up. It only produces a table further on in the report, based on information from eight pension companies, which shows levels of trail commission increasing by a small amount between 2007 and 2009, which you would expect as advisers have steadily moved away from models based on initial commission.

Another loud and unsupported assertion is Consumer Focus’s view that a significant and harmful bias will remain post-RDR as fee-based advisers who charge an hourly rate will be incentivised to flog products because this can then be translated into the chargeable man-hours associated with the products. Again, there is absolutely no evidence to back up this view which shows both a lack of understanding about the way most advisers are likely to base their new remuneration strategies and the fee-based environment many advisers already work in.

Consumer Focus does make a very fair point around consumer confusion about the purpose and function of trail commission, a problem the industry has allowed to continue over the years which will be finally addressed by the RDR. CF’s view that Nest should be able to accept transfers in is also sensible . However, any good points made in the report are easily drowned out by the raft of unsubstantiated views.

The most concerning aspect of this type of research is that we need a strong and brave consumer lobby, willing to hold the financial services industry and all its vested interests to account and prepared to make a song and dance when they believe unacceptable behaviour is taking place. Unfortunately reports like this add nothing to the debate and, ultimately, let consumers down.

Paul McMillan is editor of Money Marketing- follow him on twitter here


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. The FSA will no doubt use this nonsense to vindicate their decision to tell the TSC to “get lost”
    How about some investigative journalism into all these quangos, how much they are paid,what value they really add are they really necessary.

  2. Martins Money Tips site is asking people to complete a questionnaire for Consumer Focus on pension switching done within the last 5 years.

  3. Most Pension Transfers we come across still only have a cost of about 1.5% including the trail fee, which is to provide ongoing reviews, to meet with TCF outcomes 3 and 4. And the benefits of the transfer are very clear, in many cases they are out of Pearl or CIS With-Profit Funds where you can’t even do a fund switch to any other fund withon the contract.

    This “Research” is very narrow minded, and is just attempting to jump on the “All Pensions and Advisers are a rip off” bandwagon which periodically appears, and creates further misplaced mistrust in Pensions. I hear calls for NEST to allow transfers in without advice. Good Luck with that, I wonder hom many guaranteed annuity rates, guaranteed cash sums, and protected tax free cash in excess of 25% will be lost on transfer. If you get a good adviser who knows what he/she is doing a Pension Switch can bring a lot of benefits – a point which is very sadly missed by this rubbish “News of the World” style report.

  4. Andrew Wakefield had his career and reputation put through the blender on the back of a shoddy study that failed on two counts (if you are an afficionado of these things) – small sample – and retroactivity (ie find the problems and work back to the symptoms).

    All statisticians would tear you limb from limb for these basic errors…and yet the same fallacious rubbish gets put out into the public domain time and again. Worse, this agency even has “bias” as its first, middle and surname. Sponsored by the government and looking for a cause. Duh? What findings will they use any fallacy to prove?

    Why has the reputation of the police force been in decline? Because it has been politicised. And now we have the increasing politicisation of finance. I can assure you, there is only one way for this industry to go and that is to the bottom of the swill bin currently inhabited by the Met.

    It’s about time the enlightened got a spigot of governement spondoolicks and set up Watchdog Watch and spent a bit of time forensically picking holes in their work. It won’t be hard, because they’re invariably not bright enough to know where the logic in their argument has fallen down. Bit like Gordon Brown and his rant last week that turned out to have been based on something going on in his own peeved head rather than anywhere near planet Earth. I blame the education system, I really do.

  5. Martin O'Kelly 20th July 2011 at 5:37 pm

    Thank you Paul – an excellent response to a shoddy report.

  6. What more can we expect when assessed by the uneducated and have a strong bias, always assusing the comsumer is being ripped off..
    If the advice is good pay for it, if no ogoing advice take your business away, simple. Ask another IFA to look at it if you are in any doubt, 99/100 it is good solid advice. Roll on RDR

  7. How many more blood-sucking quangos will the poor consumer have to pay for in the future.

    These moronic, ill-informed, self-righteous twats are out to justify their own existence but, in the process, they cause serious harm to consumers who will be put off from making sensible decisions because of unfounded mistrust towards the very people who actually want to provide good advice and decent standards of service.

    For most IFAs, the continuing good relations with their clients is crucial and that relationship serves both the IFA AND the client.

    Rather than helping consumers, these government agencies will destroy the best bits of UK financial services and ensure everyone pays more for advice in the future.

    The banks will survive but just because an organization survives, makes loads of dosh, and can put two fingers up to the regulators and government, doesn’t help consumers much.

  8. I keep reading financial articles that make sense. But I also keep noticing that they are all coming from Paul McMillan.

  9. It’s a pity that the well written Industry responses to the Consumer Focus report do not recieve the same airtime that the report recieved on both the BBC and newspapers yesterday.

    I met last week with a potential member of a group pension scheme who turned down the oppurtunity to build a substantial fund from company contributions ( at no cost to herself) on the basis of the wrip off that pensions are percevied to be !

    Ill conceived consumer reports which cover ground already addressed in some depth by the regulator just add to the biggest single issue we face in financial services. Which is the lack of savings that consumers are prepared to make for the future either in or outside of a pension.

  10. There has long been a view that all IFA’s need to move away from a transactional model to one that will provide long term value to clients and therefore the business.

    Whilst this report is wrong on many points, and contains a number of spelling mistakes, it does remind the industry and consumers that more needs to change.

    I think the industry still perceives itself to be in the 1980’s when one sale per week paid the wages, only now that’s not the case. Since 2006 when the RDR was first promised far too many firms have done a lot less than they should have, and are now squealing.

    There is a market for Financial Advice and some consumers will pay, the job for all IFA’s is to find them, add some value and charge accordingly. Until then there will be report after report about charges and commission et al. Simply because this is what the regulator and many consumers believe and it’s an easy sell for them.

    You will of course notice that the Pension churn by many of the High Street firms (a lot of which are effectively state owned) was missing in this report. Don’t be surprised at that, but don’t let that point hold you back from making the changes you require in your business now.

    My thinking is that come 2013 there will be a lot more business around for lots of reason you just have to position yourself and take advantage.

    Richard Smith –
    IFA Marketing Expert at

  11. On a wider point, week empirical evidence has been a feature of the whole RDR exercise from outset – a charge laid at the FSA’s door in the past. For better or worse, the ‘new world’ is heavily concept based, rather than evidence based.

    Perhaps Consumer Focus do not therefore feel the need to support their comments with statistically relevant data.

  12. In case anyone missed it, this flawed and biased report was given lots of space on the Telegraph website.
    Predictably there were almost universal negative comments about IFAs end even the one from esteemed Martin Bamford was, to put it mildly, not exactly helpful in redressing the balance.
    Obviously it is in everyone’s interests that IFAs act professionally and honestly at all times and we do not condone improper practices, but this relentless negativity in the media which never acknowledges that most of us do a good job most of the time is despicable.
    Perhaps we are paranoid, but it would be easy to believe that the FSA and Hector’s good chums the banks are feeding some of this unwarranted anti-IFA frenzy as a way to take the public’s eye off the failings of the FSA and the banks and to justify the decimation RDR will cause.

  13. Well done Paul for not being taken in by a rubbish piece of research. Your Journalistic credentials have gone up x100+ in my opinion, I’m sure that goes for a statistically significant proportion of the readership.

  14. If you look at the actual questionair that Consumer Focus used in their research you will see that they did collect the same data on banks but chose not to publish it. I wonder why? I also noticed that Christine Farnish is also the Managing Director Public Policy at Barclays Plc.

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