In a recent article for SimplyBiz – of which Grove Pension Solutions is a panel member – Grove founder, Michael Ormond talks about the current market and what advisers can expect from a pension transfer bureau.

Isn’t the FCA unhappy about pension transfer bureaus, and trying to close them down?

The short answer is no. However, with the relatively recent explosion in the number of consumers seeking advice on this subject, DB is clearly very firmly in its sights, and rightly so.

One of the crucial issues for the FCA is to make sure people are getting appropriate advice, which is specific to them as an individual. The regulator’s concern is that, with a blanket approach to advice, where everyone is treated the same, the outcome is determined before you even start!

They want to make sure the advising firm is taking responsibility for all aspects of the advice, which means they are not just advising on the transfer, but the investments as well.

This doesn’t mean that a bureau service can’t hand a client back to the introducing firm after the transfer has been completed, it just means the bureau must know where the pension fund is being invested, is it suitable to the client’s needs and risk profile and does the client understand what is going on?

It is generally unlikely that a DB pension transfer is in a consumer’s best interest, but that still leaves a considerable number of people where it is suitable.

What the FCA wants to ensure is that consumers receive professional, excellent quality and appropriate advice, suitable to the individual. If this is in a specialist area then it makes sense to partner with someone that can deliver that for you and your clients.

Why would I need to use a pension transfer bureau?

Since the implementation of pension freedoms in 2015, more and more people, who have DB schemes, realise they have significantly more options about what to do with their benefits; and arguably the difference between DB and DC has never been greater.

The problem is that these consumers need help and advice. They need someone to explain to them what their choices are and why a transfer might, or might not, be suitable. In a nutshell they want help and guidance they can trust.

The difficulty is there aren’t enough ‘experts’ out there to help, at least not ones clients know and trust. Hence the need for a pension transfer bureau.

There are a lot of financial advisers who have been helping their clients for many years; mortgages, investments, life assurance etc, and doing a fantastic job. The traditional response to any of their clients who had old DB schemes was “These are gold plated and shouldn’t ever be touched; leave it where it is”. So that’s what their clients did; left them alone.

It’s not so straightforward now. The difficulty is that their own adviser might not have the qualifications to advise on DB transfers, or the right permission from the FCA to carry out such business.

There are also a lot of advisers who simply don’t want to get involved with the potential minefield pension transfers could bring, after all, it is an area upon which the FCA is focussing.

This is when you use a bureau service. You maintain control of your clients and stay in the driving seat. It’s not about handing your client over to another competitor, it’s about you employing the services of a specialist business partner.

You maintain the servicing rights of your client but without you taking any risk of carrying out the transfer, and for facilitating this, it’s not unreasonable for you to charge a fee. So, using a bureau service in these circumstances makes commercial sense.

Why might my client want to transfer his DB scheme?

As no doubt you’ve heard many times about DB pension transfers, “It is only suitable for a limited number of people and circumstances and shouldn’t be seen as an easy option for raising cash”.

I couldn’t agree more, in fact, I’d go as far to say that for most people, a pension transfer isn’t a good idea. However, there is still a large group of people for which a pension transfer out of a DB scheme might be suitable, it just depends on what is important to them.

Early retirement – Being able to access the pension from age 55 can be very important for some people and is probably one of the biggest reasons why people are interested in DB pension transfers; they are unlikely to be able to do this with their existing arrangement.

Flexibly income drawdown – Staggering retirement can be very attractive as the ability to take smaller chunks of cash is unlikely to be an option with a DB scheme direct, so a transfer would be needed. However, you need to crunch the numbers to make sure there is enough to fulfil your client’s expectations.

Death benefits – The ability to have your entire pension fund paid to whomever you like in the event of your premature death could be very attractive to some. It usually interests people with grown up children or who are single, as a DB wouldn’t pay anything under these circumstances.

Investment choice – Fewer people have this as a priority, but it’s still a factor. Being able to choose where, and how your pension fund is invested, to suit your investment risk profile, tends to be of more interest to those individuals who have bigger pension pots or already have money invested elsewhere.

Why the detail in a fact find is so important?

Despite the name, fact finds are not about gathering as many facts as possible. It’s about gathering relevant facts which are pertinent to the case. It’s also about treating people as individuals, with different wants and needs.

This means you must really drill down into what a client might want. It’s not good enough just to say, “I want control and flexibility”. That doesn’t mean anything; control and flexibility are important, but you need more flesh on the bone.

A client wanting access to their pension money before age 60 could be very important for them, but why is that so important? What would it mean to them?

Being able to take small chunks of their pension at separate times could also be important; they may want to stagger their retirement, but is this realistic if they only have a small pension fund?

This is vital information provided by your clients. However, you need to probe and ask more emotional questions too. If they do want some money from their pension early, obviously they will have less later, ask the question, “how do you feel about that?” How do they feel about coming out of a pension scheme with guarantees and investing into something without guarantees?

A fact find is about recording a client’s views and using words they use; by doing so, you demonstrate to the FCA you are treating your client as an individual and listening to what they are saying. You are demonstrating that the outcome is not pre-determined.