The FT Adviser have recently published this article written by our own Managing Director Tim Flippance.

The Financial Ombudsman Service has published its latest complaints data and there is some useful information about complaints related to defined benefit transfers and its attitude towards them.

In 2022/2023, complaints related to DB transfers (not to a self-invested personal pension) had an uphold rate of 58 per cent.

However the uphold rate the previous year 2021/2022 was 52 per cent; in 2020-2021 it was 50 per cent; and going back to 2019/2020 the uphold rate was just 42 per cent.

The trend is easy to spot, with the proportion of complaints being upheld increasing steadily year-on-year.

Increasing number of complaints

The other interesting bit of reading from the stats is the number of complaints resolved by the Fos.

In 2019/2020, they had to resolve a mere 64 complaints relating to occupational pension transfers.

The following year (2020-2021) this had increased to 164 and by 2022/2023 this has increased to 399 resolved complaints (category ‘DB transfer – not to a Sipp’).

However, the startling fact is that Fos stats show that there were actually 1,425 new complaint cases related to DB transfers in 2022/2023 and a further 88 related to section 32s.

Of course, this reflects a situation where the number of transfers increased substantially, commensurate with the general increase in cash equivalent transfer values over the period in question.

However, this dramatic increase has also been prompted by a surge in generalised phishing complaints made by complaints management companies, switching their attention away from the now-closed payment protection insurance mis-selling market.

Mitigating the risks for all parties

But given this scenario, if you are one of the few IFAs still prepared to help members of such schemes, this should be yet another reason to give you pause for thought.

If you still consider that including DB advice is a worthwhile part of your advice offering – bearing in mind that for a limited number of clients a transfer can be literally life-changing – then the data should certainly prompt a re-examination of your approach to advice.

After all, in the present climate and with the ever-present danger of very large redress payments, there is nothing wrong with mitigating the dangers of future complaints.

Conversations around ‘soft facts’ are vital in being able to understand and demonstrate your understanding of why the client is considering a transfer.

Of course, ensuring best practice is always applied will only benefit your clients and your business as well.

With this in mind, the following key points within this heavily regulated and complex area could provide a starting point for a review of your advice processes.

The objective of objectives

Firstly, the simple stuff: know your client (KYC).

The client’s objectives should be detailed and highly personalised. While most objectives will fit into the categories of ‘flexibility, control and death benefits’, a much greater level of depth is necessary.

Where multiple objectives form part of the client’s overall plans, it should be clear which are ‘needs’ and which are ‘wants’, as assessing the relative importance of these will become a vital part of the appropriate pension transfer analysis stage later on.

Specific questions pertinent to DB transfers should be included within normal fact-finding.

This should include, but not be limited to: a record of the client’s attitude towards transfer risk (not just investment risk); their opinions and feelings about the importance of their objectives; and their views on the viability of potential alternatives.

All answers should be specific to the client’s situation, with direct client quotes used where particularly personal/emotive subjects are discussed, as they always should be.

Ultimately, conversations around ‘soft facts’ are vital in being able to understand and demonstrate your understanding of why the client is considering a transfer.

Do not just confirm understanding, demonstrate it

It is also beneficial if the client, even at this early stage, can demonstrate their own general understanding of the benefits of their existing pension and the risks involved in transferring.

This can be assisted by the provision of triage-type standardised documentation beforehand, but the key is recording their understanding in their own words.

This will help reassure you that your client knows exactly what they are getting into and no future complaint could, or should, be based on a lack of client awareness of the risks.

Advice – clear, fair and definitely not misleading

When it comes to advice, matters become a lot more nuanced and one-size most definitely will not fit all.

Abridged advice, which only takes into account basic client circumstances, is not yet a regulatory requirement.

In addition, it is not yet clear whether this would help to defend any future advice-based complaint.

However, certainly the principle of providing an additional touchpoint, where the general risks and implications of transferring are outlined to the client prior to committing to full advice, would not do any harm at all.

By opting into full advice, clients are at least indicating their acceptance of these warnings.

Ultimately, in the event of a future complaint, the Fos would want to see that you have given serious consideration to all potential alternatives open to your client, and this means a lot more than paying lip-service.

Where an alternative solution to the client objectives is determined to be more viable within the appropriate pension transfer analysis, this should be discussed in detail with the client prior to making a recommendation.

The client’s own thoughts towards these should be recorded and ultimately where you deem these preferable to transferring, this is likely to form part of any negative recommendation.

The Fos would also expect to see that serious consideration is given to any early retirement options offered by the existing scheme, as this would generally be considered a less risky option than transferring and therefore more appropriate.

Examine precisely how the scheme benefits could potentially fit into your clients’ objectives (even if some level of compromise would be required on their part) and always discuss this option, however much this may not be the case.

Similarly, while most schemes will have a normal retirement age of 65, it is now unusual to find a client that actually intends to retire fully at that time.

As such, Fos will expect to see scheme projections based on both and these considered within full advice.

Positive/negative

A positive recommendation will depend on the pension transfer specialist adviser being able to demonstrate that the transfer is both in the client’s best interests and is also going to achieve their desired objectives.

Ultimately, it is imperative that a transfer is satisfying a client need and that this is demonstrated clearly.

Much like KYC above, when discussing the recommendation, it is vital that the client’s feelings on any emotive issues are thoroughly detailed.

These really will help to demonstrate why the client wants to transfer.

For example, a desire to retire early is not an unreasonable motivation to consider a transfer to a flexible pension.

Write down or otherwise record absolutely all communications you have had with all parties, not just the client.

Further questions, however, should be asked. For example: how long have you been waiting to retire? Why retire now? Why is this important to you and what would this mean to you? Why not take the scheme benefits, where available?

It is then imperative that the suitability report reflects this, providing a comprehensive written record of all conversations. A full suitability report must be provided, even where the recommendation is not to transfer.

Even with a robust pre-advice process with various client checkpoints along the way, you would still generally expect to see a number of negative recommendations as well as positive.

If it is not written down, it never happened

With most DB transfer advice still conducted face-to-face, it is advisable to follow up every client meeting with a summary of what was discussed and agreed.

As well as being a useful and incontrovertible record, this also has the benefit of reassuring your client that you have a complete understanding of all aspects of your role and of the client’s personal circumstances and objectives.

Where advice is provided over the phone/zoom meetings, it is worth considering recording these for posterity.

Forever and ever

The time bar rules for complaints are set out in the Financial Conduct Authority handbook, DISP 2.8. This provides that Fos cannot normally consider a complaint if the complainant refers it to the Fos:

  • more than six months after the firm sent its final response letter to any complaint from the client regarding the advice; or
  • more than: (a) six years after the events complained about (usually the advice); or (b) three years from the date on which the complainant “ought reasonably” to have become aware that they had cause for complaint.

It does seem that Fos is increasingly unlikely to apply this restriction to a complaint, particularly as the expression “ought reasonably to have become aware” is very much open to interpretation.

In addition, FCA requirements as per Cobs 9.5.2 state: “A firm must retain its records relating to suitability for a minimum of the following periods: if relating to a pension transfer…indefinitely”.

So, in summary, write down or otherwise record absolutely all communications you have had with all parties, not just the client, ensuring they are comprehensible, stored in a method that allows easy retrieval (at short notice), in chronological order, permanently, and with no risk of deletion, accidental or otherwise. Simple.

Stay up-to-date

Although reading the FCA’s Cobs rules is very few people’s idea of fun, it is particularly vital where DB transfers are concerned.

Cobs 19.1 will ensure that you get a lot of the basics right, and should the regulators want to review your processes and systems, Cobs is the lens through which they will do so.

The FCA also issue non-handbook guidance and this is vital reading, with the inclusion of good/poor practice examples particularly helpful.

Tim Flippance is managing director of Grove Pension Solutions

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