Documentation is the key to avoiding compensation claims in the future - as well as client understanding. This has been particularly noted in relation to those helping ‘insistent’ transfer requests, but applies to all work related to accessing a pension.
In order to future proof advice Billy Burrows, director of Retirement Intelligence, says advisers must make sure they have covered four important issues:
1) Income requirements – now and future.
2) Need for flexibility.
3) Attitude to risk and capacity for loss.
4) Death benefits.
Mr Burrows says: “If these issues are all discussed and properly considered, the advice should be robust.”
Advice today can only be based on what we know today, says Alistair McQueen, head of policy and compliance business protection at Aviva. Mr McQueen says annual client reviews are the best ways of ensuring advice is up to date, and relevant.
But several of the experts we spoke to say the compensation claims of the past show advice simply cannot be future proofed.
Richard Priestley, executive director individual onshore at Canada Life, says in an industry that is constantly changing and evolving, it is impossible to ensure that retirement advice today is future proof.
However, he says you can make sure the outcome meets the client’s expectations, the advice is suitable and the client understands fully the benefits given up.
Providing all this is documented and when appropriate a full transfer analysis has been done it should provide a ‘robust’ complaint file, Mr Priestley says.
Jamie Jenkins, head of pensions strategy at Standard Life, says: “If we look back over the last 10 years, there have been substantial changes in the world of pensions, affecting everything from the amount that could go into a pension through to the different ways in which retirement income can now be taken.
“Who would have thought two years ago that it would be possible to take everything out in cash, or leave a pension pot to someone else free of tax.
“What will be key in the new world of pensions is the need for regular reviews, just to make sure that the client’s needs are still being met in the most appropriate and tax-efficient way.”
Claire Trott, head of technical support at Talbot & Muir, points to the current predicament of those who advised clients to take out a money purchase scheme pension. She says they could not foresee the pension freedoms and now the clients are unable to use flexi-access drawdown.
Ms Trott says there is no doubt that for many this was the correct advice at the time, giving them increased income based on their personal circumstance, but with hindsight and a lack of consistency in legislation they are now trapped with the only option being stay in a scheme pension or buy an annuity with the fund.
She says: “If you can prove why you recommended the course of action and the client understood the reasoning rather than, ‘they just told me to do it’ then you will reduce the risk that the client will feel that the advice was incorrect later down the line, even if there is a change of legislation that would have allowed them to do something differently had they waited.”