Aviva’s John Lawson has argued the issues raised by the Financial Conduct Authority about defined benefit pension transfer advice can be dealt with, and told advisers to fiercely interrogate the firms they outsource the business to.
Yesterday (3 October) the Financial Conduct Authority stated some firms providing specialist advice on defined benefit transfers have still not taken warnings on board.
The regulator found some of these firms made transfer recommendations without considering the receiving scheme or investments the defined benefit pension cash ended up in, or without knowing the introducing adviser’s intentions for the pension.
The City watchdog’s comments followed work over the past two years when the FCA has been asking firms for detailed information about their defined benefit transfer business.
Last year the FCA published an alert warning about the risks of advice firms accepting business from unauthorised introducers or lead generators.
At the time the regulator said it was “very concerned” about the influence introducers appeared to have over the pension transfer advice process.
The FCA found in some cases there was a lack of information sharing between the introducing firm and the specialist transfer firm which resulted in unsuitable advice, where the specialist firm did not have enough information about the client’s objectives, needs or personal circumstances.
The FCA said: “We could not see how the specialist transfer firm could produce accurate comparisons between the DB scheme and the receiving scheme.
“The potential income in retirement in the ceding scheme will be affected by product and fund charges, and the likely returns.
“The client would not be able to make a fully informed decision without a comparison which took all of this into account.”
At FTAdviser’s Unpackaging Pensions event today (4 October), Fiona Tait, technical director of Intelligent Pensions, pointed out another adviser had said intermediaries and pension transfer specialists working more closely together in the way the regulator has demanded “is impossible”.
In June Intelligent Pensions announced it would no longer carry out advice on transfers of defined benefit pension schemes following a discussion with the regulator.
The company, which offered its defined benefit transfer service to external IFAs as well as its own internal advisers, has now agreed with the Financial Conduct Authority to stop offering advice on the exchange of final salary schemes.
But Aviva’s head of financial research John Lawson said it is workable if an adviser has a good relationship with the pension transfer specialist that it outsources to.
He told a packed room of advisers gathered at etc Venues in London that what was essential was for intermediaries asking the right questions up front such as “Have you got enough staff to deal with timescales? Will you start turning down business? Does your specialist understand the risk of what is being transferred into?”
Advisers at the Aviva-sponsored event were told by Mr Lawson that they need to make sure the pension transfer specialists they are dealing with isn’t just looking at the defined benefit scheme but “has all that knowledge” about where the cash will end up.
Mr Lawson said: “Is it workable? It is if you put all that work into it."
He said what was clear from the FCA’s comments was not enough work is going on between advisers and pension transfer specialists to make sure all parties involved in arranging a defined benefit pension transfer understand the full picture.
He said: “They [advisers outsourcing to pension transfer specialists] are not giving the whole background. What their [client’s] needs and aspirations are. If you are going to outsource you retain responsibility for that whole transfer.
“They are looking at whether advice is responsible beyond that transfer itself. They [the FCA] say we have used default funds and default charges. You are not basing it on specifics of that individual case.”
Mr Lawson said pension transfer specialists are maybe currently taking on too much work.
He said: “You have three months to get it [the transfer] through so if you are going to outsource you need to make sure they will be able to get it done and aren’t taking on too much work.”
emma.hughes@ft.com
