Pension transfers - the debate continues
Written on 10/08/2018

Contentious Commentary regarding DB transfers is non-stop in the Pinks.  The Department for Work and Pension’s has just launched a consultation into the March White Paper’s proposals enabling the regulator to act quickly when pension schemes are at risk from company measures, with greater powers to be proactive and obtain correct information regarding the scheme and the sponsoring employer. The high-profile cases of British Steel and Carillion highlight the need.  The system must be tough enough to deal with abuses for all involved. Ultimately this could lead to criminal sanctions, with hefty fines and disqualifications on route to that.  Reckless misselling is also a criminal offence under Section 397 of the Act (maximum sentence seven years.)  It is a mystery to IFAC why not one single IFA or bank or other retailer has been charged in all these years under this offence.

In the advice arena, many issues of suitability still exist, as they always will until all transfers cease (with PI reaching all-time highs, this is becoming a reality for some). One common ‘denominator’ in the breakdown of suitability seems to be ‘introduced’ business and the perceived alienation of the adviser (the pension specialist) from the individual they advise on transfer. Furthermore, where the investment relationship is handed back to the introducer after transfer, further alarm bells potentially ring. A lack of care in the pension comparison, meaningless non-applicable critical yields, lack of due diligence on products and funds will further compound the problems faced. 
It is clear Pension transfers are a significant source of business, and as is to be expected requires considerable extra care from a business risk perspective. IFAC experience a range of adviser profiles in their dealings, and the ones with the least PI generally are those with the strictest controls.
The regulator states that the transfer specialist must start with the assumption that it is not in the client’s best interest to transfer, it follows then it is a brave adviser who deviates from that proposition, and clearly any deviation will need to demonstrate why this is not the case for the ’specific’ individual concerned. This conclusion cannot be arrived at by an array of pre-defined reasons to be selected on a case by case basis. The reason will be unique in every ‘specific’ case, and the adviser will need to demonstrate why, from his or her communications with the client, transfer is advised. This sounds common sense, and it is, however, complacency is creeps in.

So, what’s the deal with introducers? Advisers don’t like losing clients to another firm but want a route to offer the services to their clients they cannot provide. In doing so, they will want to go with a specialist who will charge less and leave them with the ongoing fees for investment advice. From a business perspective its obvious. But hang on a moment, the specialist is responsible for checking the investment advice is suitable (assuming transfer is advised (see Cobbs 19)). The FCA will no doubt be keen to see that the specialist at least agrees with the advice, and for the specialist to agree, he or she will have to show ‘ownership’ that the investment recommendation is his or her ‘best advice’ at time of transfer for the specific client, and also ensure that the client concerned is fully aware of where the money will be invested and why prior to transfer.
In short, companies taking on transfer business from introducers will need to be able to demonstrate that despite the initial ‘distance’ from the client, the investment advice has been fully personalised and specifically tailored to the client concerned, demonstrating transparent and informed communication between them.

The ideal default regarding the advised investment of the transferred pension, is that the client continues with suitable investment advice after transfer. Does this mean that the firm responsible for the transfer should retain adviser status after transfer? Clearly, it would ensure the investment remains suitable in the specialist’s eyes. Either way, IFAC believes a period of investment review from the specialist after transfer would strengthen the suitability of the transfer advice.

Further Comment:

The new PII addendum for all renewals involving DB transfers is attached.  You need to get your practice into the box seat – to say that you have 100% files pre-checked by an external checker who verifies suitability.  Anything less will cost you money in higher premiums, lower cover, increased capital adequacy and restrictions on trade imposed by the FCA.
I attach DB transfer documentation for PII.

If you do Pension transfers, here are ten rules to ensure that you ger renewal terms in 2019

  1. Don’t do insistent clients
  2. Don’t do contingent charging, but charge a fee for all.
  3. Do recommend the fund and ongoing investment.
  4. Do include capacity for loss on fact find.
  5. Don’t do introductions from non-authorized firm sources
  6. Do the due diligence on the introducers beyond basic check of registers etc, and record it.
  7. Get 100% of your files checked externally
  8. Get 100% of the files checked Pre-sale.

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