There has been a lot of press coverage in June over our regulator (The FCA) clamping down on issues related to defined benefit pension transfer (DBTV) advice.
As you will gather, if you have read previous articles, either on this blog or in the wider media, that I have written, I have thought for a very long time (between 3 and 5 years) that this area of advice has been very poor, with adviser and client incentives aligned in the wrong direction, meaning that many individuals will get poor advice.
Given the decision to transfer a defined benefit scheme is almost certainly irrevocable, my view had tended to be that an individual should only transfer if they are sure they will demonstrably better off, and not simply because “the numbers can work”. I also would disagree that individuals should consider a transfer as a matter of course, because “they might be missing a trick”.
This month, the FCA have announced:
- A clamp down on contingent charging meaning that individuals should not be offered “advice” for free on the expectation that a transfer “might work”.
- Action on some of the firms who were at the leading edge of sub standard defined benefit advice, particularly in Port Talbot, where the British Steel Pension Scheme was based.
- A simple website, offering individuals the opportunity to check the advice they have received.
We have been asked for individuals to give a second opinion on advice they have received, either before they have implemented it on indeed after.
Reviewing advice before it is implemented
If you are considering a second opinion, before implementing advice, it is a good indicator that you do not view the advice as appropriate. If an adviser has done a competent job in collecting your objectives, analysing them in a coherent way then the advice should speak for itself.
That is not to say that any recommended solution will be perfect, but a recommendation should clearly state the reason for the recommendation, how the recommendation meets your objectives, and any disadvantages with the recommendations.
What they should not be is a list of pros and cons, expecting you to select the one that best suits your needs, this is not advice, this is simply a shopping list of options.
In some circumstances an adviser may change the advice they have given. Maybe your objectives have changed or the weighting you attached to different objectives may change, but if a full and comprehensive factfind has been done, these situations should be relatively rare.
Reports that come from a Financial Planner without cost should not be treated as advice, they are often simply a sales tool, particularly with firms heavily focused on implementation fees notably banks and restricted advice firms. The FCA is quite clear; a negative recommendation should not be cheaper than one that is implemented.
Reviewing advice after it is implemented
After the advice is implemented it is very hard to unravel, so of course you should satisfy yourself that the advice you are receiving is appropriate in advance. But we have been asked by many individuals who have transferred their benefits away from defined benefit pension schemes and asked for more clarity over a coherent plan.
Where individuals have transferred on gut-feeling (and I have written before as to why behavioural finance tells us this may be a poor decision) it may be that they have not given sufficient thought to the future and we specialise in building financial plans that help people understand how they can make use of the benefits they have.
It is actually very rare that we would want to give a second opinion, or indeed review historic advice. However, we can look at your circumstances with a “blank sheet of paper” approach. Where an individual has transferred and either regret their decision, or want to make the most of what they currently have, we are potentially able to give advice on an ongoing basis.
Because of the scope of such advice can vary between individuals I would encourage you to get in contact if this piece raises any concerns with you, we will bear the cost of an initial conversation. Under current circumstances this can be on the phone or video conference to suit you and we have a secure file transfer facility so you are not exposed to the risk of transferring sensitive documents over the internet. I would be happy to discuss any concerns raised by this piece further.