Why do I need to pay for advice?

The rules are clearcut; if you have a DB pension with transfer value over £30,000, you must have advice before you can transfer.

This always applies to Defined Benefit pensions and pensions with Safeguarded Benefits. The firm providing advice must have appropriate FCA permissions, the correct Professional Indemnity (PI) Insurance and advisers with additional qualifications – known as Pension Transfer Specialists (PTS).

In addition, compared to general financial advice, providing advice on ‘pension transfers’ carries additional risk for firms.

Because of all of this, most IFA firms won’t, or can’t, offer this type of advice.

Advice is not just ‘ticking boxes’. Many people think “this is my pension, my money, I can do what I like”. But that just simply isn’t true.

If the firm giving you advice to transfer your pension gets it wrong, the consequences can be significant. Not only for you, in terms of losing out on valuable retirement income, but for the firm too, ultimately having their permissions taken away or being closed down if they haven’t fulfilled the FCA requirements completely.

This is why the firm providing advice must undertake a lot of analysis of both your pension benefits, and your personal circumstances, and they must be able to prove they have done so. This takes time to do and importantly requires highly qualified and experienced staff. At Grove, we don’t just have qualified PTS advisers – we also need compliance staff who are experts in Financial Conduct Authority (FCA) rules and the complex world of pensions legislation, keep up to date with the current interpretation the Financial Ombudsman (FOS) is taking, as well as experienced administrative Support staff.

We will initially provide ‘Abridged Advice’ for free to all clients. During this type of simplified advice, we’ll provide advice based on your personal circumstances, but we cannot consider the generosity of the transfer value or undertake any analysis of your pension benefits. These rules are very clear and laid down by the FCA.

Our PTS adviser will either conclude that a transfer is not advisable (negative), or we can’t determine suitability without proceeding to Full Advice (inconclusive). We will also confirm the precise fee we would charge for Full Advice.

Abridged Advice can be very helpful if you are unsure as to what you want to do, particularly as you can discuss the outcome of this with your adviser prior to Full Advice.

In order to transfer your pension, you must have Full Advice. At this stage, we are allowed to consider all relevant information including the potential destination of a transfer and whether your transfer value represents value for money or not. Its conclusion is not restricted and can include alternative recommendations other than just transferring.

In other words, the fee is for the advice and not for the transfer and this must be applied in line with FCA rules. This ‘non-contingent’ fee structure is designed to ensure that advisers such as Grove have no particular incentive to recommend a transfer, and will only ever come to the right conclusion for you.

It takes an average 40 hours of work by our administrative, compliance and professional advice staff in providing Full Advice. In addition, like any business we have overheads such as support staff (IT, Accounts, HR etc), building costs, stationery etc. Our fees are higher when dealing with larger transfers (based on a percentage of the pension) because of the increased risk of these, and therefore costs incurred – such as PI insurance.

Should you proceed with a pension transfer, we will normally oversee this process and liaise with you, your pension scheme, and the receiving pension company, until completion. However, although your pension scheme may take a few months to release the funds, this is a fairly small amount of administrative time for us.

If you proceed to Full Advice and our adviser finds a pension transfer unsuitable (‘negative’), they’ll explain their reasons in writing. If you agree and don’t transfer, the Full Advice fee must be paid. If you disagree, you may request to continue as an ‘insistent’ client and the fee can be taken from the transferred funds.

However, not all firms accept insistent requests so be sure to confirm your firm’s policy, as you could pay for advice without being able to transfer. Learn more: Insistent Clients – DB Pension Transfer Advice.