The FT Adviser have recently published this article written by our CEO Dash Ormond.
Why are so many firms abandoning the defined benefit transfer market, LEBC being the most recent? To understand, you need to go back to when it all started.
In 2015, then-chancellor George Osborne introduced pension freedom rules, giving people significantly more control over their money, including DB pensions. It was even said they could “buy a Lamborghini’” with their pension pots.
The problem was he dropped this bombshell with very little time for the Financial Conduct Authority to get their act together and regulate this new freedom demanded by consumers; some who wanted new cars, others (more sensibly) just greater choice about how they use their pensions.
However, to reflect pension freedoms, the FCA should have published far earlier the detailed rules and clear guidance IFAs needed.
Without doubt, most financial advisers are good, decent and honest people, however they need clear instruction from their regulator about what is expected from them.
Everyone knows they need to be “clear, fair and not misleading” and to “treat customers fairly”, but surely some responsibility is borne by the consumer in deciding what suits them, and the advisers job is to help them make that informed decision.
Too much is open to interpretation, then when the FCA does not like the results, it is the advisers that get a kicking. When the political mood changes, the FCA changes how it interprets its own guidance – this approach can’t be fair on advisers.
This has been perfectly demonstrated with the British Steel situation. The problem did not start with the FCA, it started with the appalling way the government allowed it to happen and the lack of thought about the potential consequences of closing the pension scheme.
Fos has gone too far in its interpretation of ‘the starting point is this is a bad idea’.
And then a very small number of dodgy advisers joined the melee, cutting corners in providing information and explaining the risks, and promising investment returns that were too good to be true.
However, if the FCA had acted more swiftly, given the powers at their disposal, these bad advisers could have been stopped.
Instead, the FCA retrospectively needed to be seen ‘acting tough’ and ‘cracking down on bad advisers’, so suddenly the majority of transfers were inappropriate, and every adviser tarred with the same brush.
Nearly 100 per cent of British Steel complaints that go to the Financial Ombudsman Service are upheld, which is impossible in my opinion.
But this prevailing attitude is leaking into all Fos decisions now and, to compound this, decisions are being made by individuals who do not necessarily have DB transfer qualifications.
So someone who isn’t qualified can decide suitability based on their interpretation of a balance of probability, which could result in a payout of up to a whopping £355,000.
Fos has gone too far in its interpretation of ‘the starting point is this is a bad idea’:
- If it’s the clients only DB scheme, they think it’s unsuitable.
- Your client demonstrates their acceptance of risk, but the Fos does not agree that they ‘meant’ it, it’s unsuitable.
- Insistent client cases: Fos is saying that following the FCA rules that applied at the time of the advice isn’t good enough, even if you exceeded what was required they still say it isn’t enough.
There is just a lack of balance applied by the Fos. And once the ombudsman has made its decision, it is virtually impossible to challenge because an unbelievably high bar is set to be able to take them to a tribunal. This cannot be right.
Underwriters are reluctant to enter the PI market because of this, while claims management companies look to cash in on an opportunity, using standard templated letters full of inaccurate comments and even forgetting to remove the previous client’s name on occasions.
Even if Fos rejects the complaint, the CMC suffers no consequences from this fishing exercise and the IFA is left with a £750 Fos fee.
So, while the initial responsibility for the demise of DB transfer advice is shared, the nail in its coffin is being hammered in by Fos.
Until they have a proper overhaul and attitudes change, it will only shrink further. In the meantime, it is clients, often desperate for life-changing DB transfer advice, that will increasingly miss out.