Member Update 15th March 2019
Written on 15/03/2019

Question from Financial Exam

In the 2015/16 tax year, Bob paid in £55,000 to his pension in the pre-alignment tax year, and £20,000 in the post alignment tax year. The annual allowance in the pre-alignment tax year was £80,000. How much allowance could Bob have carried forward from the 2015/16 tax year?

a. £15,000
b, £10,000
c. £5,000

Answer here is c £5000

Attitude to Risk 
There has been growing emphasis by the FCA around the importance of Client Attitude to Risk, and more importantly:

  • Assessment of attitude to risk, when and how.
  • Recording of discussions with client around ATR and Capacity for loss
  • Annual reviews and confirmation of ATR / capacity for loss. 

 Based on FCA meetings and communications, IFAC propose to assess client files on the following basis:

  • FCA “Best practice” – is to complete a new ATR assessment annually, so at “review”. 
  • However, if at the Annual Review”, there have been no significant changes in client circumstances, no change in life cycle, the adviser can “re confirm” ATR level / capacity for loss with the client, and confirm that investments etc still match the ATR level, with the proviso that ATR should be fully re assessed after a maximum of 3-5 years. Best practice 3 years. 
  • If there are any changes to funds, re confirm ATR, and how this matches ATR, max 3-5 years again, but best practice would be a new formal assessment of client ATR / capacity for loss.

According to UK Finance, 46% of new loans by number are to those aged 65 and over.
Later life lending has exploded into life.

Specialist sign off on DB Transfers
If you want a smooth PII renewal, you need specialist sign off on Pension Transfers.
This is not just a signature on the client file.  There needs to be evidence that the specialist has checked the entire advice, and agrees in writing that the recommendation is suitable for the client.
You wouldn’t expect any less if you were being operated on by a surgeon, and when it comes to DB transfers, the transfer too is usually a life changing experience for the customer. 

Delegated authority schemes and the importance of TOBA
(photo of Lloyds building)
Following enquiry on new-start GI firms we explain Delegated Authority.

Delegated Authority is an arrangement between underwriter and broker, which gives the broker the authority to do the underwriting for the broker.  Brokers are closer to the ground, so are better placed to assess the risk.  The broker can in this way incept the policy themselves.   It’s a one-stop shop. 

What’s not to like about this?  If the broker is crystal clear about the criteria – then surely it is a win-win?  The insurer has outsourced their work, franchised their power and the broker is empowered to decide.  In addition the brokers can net off their commission without referring to the underwriter, reducing costs all round.   

The accounting used is known as a “bordereau” system.  (Tricky term, bordereau, but is effective at confusing the laity, alongside indemnity commission and clawback.)  Bordereau means that each quarter the broker accounts to the insurer for the risks and commission and premium, and pays the premiums on again. 

Control comes through the  'Terms Of Business Agreement' or TOBA which is a weighty document setting out exactly what the coverholder can and cannot do.   Nice clear underwriting guides should let everyone know what sort of risks they cover, and what they don’t.

The problem is the amount of trust placed in the broker, and the insurance company can very quickly lose control with a mad broker sticking their name to some lunatic risks.  So you need training 
for the brokers– as ever, and clear guides, and a cute awareness of the essential conflict that all brokers face on the high street – they need the new biz, whereas the underwriter needs a profit, and is looking at three year accounting periods, not 3 months.   And be very careful with the finances.  The broker has the premium on trust (or risk transfer) of the underwriter, and there’s a long tail of small brokers who “over extend” themselves. , to use a polite phrase.  If you’re the broker, then wake up – you’re almost certainly liable to account for the premiums to the underwriter.

The way to navigate that is to have very clear underwriting criteria in place for the coverholding broker, so that they can know exactly what they can and cannot write.  Then someone from the insurance company must examine the book and see the risks that they could end up swinging on the meat hook for.
It's the Terms of Business Agreement, TOBA  that decides this.  This explains why the regulator is so very keen on TOBA, and why you should always pay attention to your terms of biz.  Get it checked by IFAC!

FCA fines The Carphone Warehouse for insurance misselling
Whistleblower cost the firm £29m!
On 13 March 2019, the FCA published the final notice it has issued to The Carphone Warehouse Ltd (CPW), fining it £29,107,600 for failings that led to the misselling of a mobile phone insurance and technical support product called "Geek Squad".
CPW made regulated sales of Geek Squad policies worth over £444.7 million. And this is how it did it – a notable guide in how not to sell on the phone 
Sales staff were trained in "spin selling", persuading customers to purchase Geek Squad and repeating the features of the product. 

  • No training was provided on how to respond to customers wanting advice.
  • Sales staff were trained in "objection handling", as a way of selling 
  • Customers who said “I want to think about it” were told to purchase Geek Squad and cancel in 14 days. 
  • When customers complained, CPW didn’t bother too much about it.
  • A high proportion of policies sold were subsequently cancelled early. Just as with PPI misselling, an apparently simple piece of information was used to dig deep into standards.  

Whistleblowing also helped.  Mark Steward, FCA executive director said "without whistleblowers coming forward these practices may never have come to light." 

All news