PensionsOct 13 2017

Pension transfer rule changes worry advisers

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Pension transfers and the regulator's close attention to them is one of the biggest concerns for advisers, Tom Hegarty has said.

The managing director of the New Model Business Academy (NMBA) said: "We have seen a lot of customers with high transfer values on their pensions creating significant activity over the past couple of years.

"The regulator is looking at this more closely than it has done previously.

"Advisers want to be sure they are doing the right thing and being thorough, so they do not get caught out by any future changes in regulation."

In June this year, the Financial Conduct Authority launched its consultation into defined benefit transfers. Among its recommendations was to replace the transfer value analysis (TVAS) system to avoid an over-reliance on the critical yield calculation when advising on transfers. 

It also recommended removing the statement that a transfer should be assumed to be unsuitable, stating instead the adviser's assessment on a case-by-case basis should start from a neutral starting position - although it still reiterated that a firm should have regard to the likelihood it will be in the best interests of the majority of consumers to obtain, or retain, safeguarded benefits.

This has caused consternation among some respondents to the consultation, which closed on 21 September.

Another concern for advisers is the pace of change, driven partly by technological developments and pension freedoms, Mr Hegarty told FTAdviser.

Because of pension freedoms we are seeing an increase in the demand for advice, but this is almost outdoing the capacity and the supply of advice.

He believes the majority of advisers have made their peace with robo-advice, but added: "Robo advice is not the right term. I prefer to call it online platform solutions or online technology solutions.

"Some are direct-to-customer solutions, which will appeal to younger clients potentially, or those with simple transactions. For more complex requirement, the face to face advice process will be more advantageous."

But Mr Hegarty said in the longer term there was a bigger issue in terms of capacity, over and above the short-term challenges of regulatory changes to DB transfer rules or disruptive technology.

He explained: "There are more advisers leaving the industry now than people coming into the industry. Because of pension reedoms we are seeing an increase in the demand for advice, but this is almost outdoing the capacity and the supply of advice.

"Technology solutions will be really important to help within this area, so advisers can offer different types of service depending on what the client's needs are."

According to Mr Hegarty, NMBA is helping financial advisers to put in place processes that will stand the test of time and to help with succession planning.

He added: "Depending on what data you look at the average age of a financial adviser is 50. With fewer coming through and more looking to leave or retire, the number of advisers has been diminishing. This causes two problems.

"First, those wanting to take on additional advisers or paraplanners to expand their business are struggling to recruit. At the same time, the whole issue of people wanting to leave are finding it harder to find a suitable buyer."

NMBA has created forums for advisers to discuss different arrangements and how this might work for their business, and to help advisers transition their business across to someone else.

"From an apprenticeship point of view, this is an opportunity for us to help replenish the number of financial advisers in the industry over the next few years. It will be a gradual process but over time we are confident this will be a great opportunity to bring more advisers through", he added.

However, Mr Hegarty admitted: "It has been slow. In April this year there were changes in the apprenticeship levy but this has not provided funding from the government yet for small business who are not levy-paying organisations.

"Firms such as NMBA will need to reapply for budgets, which hopefully will enable us to start apprenticeship training in 2018."

He added the whole industry in general needed to encourage more young people to consider entering the profession, as well as to encourage those who are looking for a career change.

NMBA is hoping to go into schools and colleges and talk through the basics of financial education, which Mr Hegarty suggested would help people to start saving more, be more wary of getting into debt and create a "positive perception" about financial advisers. 

simoney.kyriakou@ft.com