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Self-destructive would be DIY pension transferors seek your help!

I’ve lost count of the number of enquiries we’ve received from all over the UK seeking our ‘help’ to ‘simply sign off’ an occupational pension transfer from a Defined Benefit pension scheme to a Money Purchase or personal pension plan.

Life is not so simple and occupational pension advice is a complicated high risk area!

I’m guessing that many of these enquiries are a result of me publishing this Blog last August:

The article covers just some of the reasons many pension plan holders are now seeking advice on ALL of their pension options – and not just those options from their main Defined Benefit pension scheme(s).

Not just any old Tom, Dick or Harriette can advise here though. For most forms of occupational pension transfer advice, firms must hold the appropriate ‘CF30’ (customer function). The person giving the advice must have a higher level pension qualification including (but not restricted to) the CII – G60 or CII – AF3 qualification.

Our UK regulator, the FCA, wouldn’t tell me how many pension transfer advice specialist individuals there are in the UK (they don’t require individuals to the registered now). I’m guessing, from our enquiry levels, those advisers with the permissions and necessary qualifications are in the minority.

The demand for advice follows on the back of pensions freedoms introduced in April 2015. FCA rules that came into effect on 5th June 2015. summarise where advice is a necessity.

The FCA’s PS15-12 stated that the advice of a Pension Transfer Specialist is required for the majority pension transfers involving safeguarded benefits above the value of £30,000, even where these benefits are not being crystallised.

UK pension providers will remember the financial pain of the Pension Transfer Reviews of the 1990’s. They don’t want the ongoing liability of giving advice in this area.

Many of the requests to ‘sign off’ a defined benefit pension transfer involve significant amounts of money. Often the transfer value is the client’s largest asset. Bigger than their home.

We’ve seen a pattern of issues arising from this type of enquiry. This is especially true where the client is not already known to us. They are shopping around – often outside their geographical location – for the weakest, cheapest advice link.

Someone who has accrued a pension fund valued at six or seven figures, are usually successful people. They may be used to self-advising and/or they feel confident enough about pensions to not involve an outside party. They are rarely financial delegators. Does that personality type make an ideal client?

It often comes as a shock when pension administrators advise the scheme member they cannot simply move their defined benefits (with the associated loss of several benefits) to a money purchase arena without first taking (and paying for) expert advice. A full analysis is required.

Many consumers with significant pension funds don’t agree that advice is required. That should act as a ‘red flag’ warning to the advice firm.

This places the advice firm in a dilemma. I’d argue, for consumers seeking a bargain fee in this area, that even where all the post analysis signals are that a transfer could proceed, the chances of that advice firm being able to end up managing the funds (and/or operating at a profit) are slim.

There is a danger advisers ‘give away’ their pension transfer advice services and that the next time investment markets fall or if the fund runs out you’re landed with a claim for compensation.

If you recommend the client does not to transfer, this can be seen as a recommendation in favour of the existing defined benefit pension scheme. If that scheme fails – then what? The Pension Protection Fund, if it still exists, might help. How much is the limit on your professional liability insurance? Best check.

Either way, the advice firm is left carrying the liability for the advice, without limit of time, and potentially without any hope of influencing the long term client outcome.

This poses the question, how much should a firm charge for a full defined benefit analysis service? £2,000 per scheme? £2,500? Under that level, is it really worth getting involved and the ongoing liability/reputational risk to the business? How much should you charge?

In addition to a transfer value analysis, detailed know your client information is required – including health, attitude to risk as well as capacity for loss etc. I’d argue that no proper planning or accurate advice can take place without detailed lifetime cashflow modelling examining the possible outcomes of each pension option.

Rather than giving away our services and knowledge at a loss or for free (or close to it), pension transfer experts should be ‘circling their wagons’ and charging decent minimum fee levels. We should also be taking greater care as to whom we take on as clients.

The FCA’s stance on so-called ‘insistent’ clients in this area is given here:

It has been said that insistent clients do not exist as one of the two parties does not understand what is being said.

From what I’ve witnessed, wealthy DIY consumers are shopping around on Google and Unbiased for the ‘cheapest’ pension transfer advice option and the weakest link in the advice chain. Caveat venditor!

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