Financial advisers are being urged to detail all steps of the advice process and the client history in their defined benefit (DB) transfer suitability reports, after a compliance expert found most files had a ‘black hole’ which could lead to complaints.
Speaking at The Great Pensions Debate in Port Talbot yesterday (10 July), Philip Norbury, compliance manager at In Partnership, argued most complaints he analyses had one problem in common – they were lacking in detail.
He said: “The story starts with A, B, C and ends in X, Y, Z, and there's this huge black hole the adviser can't demonstrate in the file.
“You won't be able to come back from that in five, 10, 15 years. Because you won't be able to defend yourself, you won't be able to demonstrate what you have done was in the best interests of your client.
“It doesn't matter if your client was happy or agreed with you at the time, it's about what you can demonstrate.”
Mr Norbury said most complaints he deals with about suitability reports are currently being analysed by the Financial Ombudsman Service (Fos).
He said: “My experience with the Fos is that if you can't demonstrate [the process of advice], you have got no hope.”
Kate Shaw, independent financial adviser at Financial Life Planning, argued the ‘black hole’ was something that could occur without intention.
She said: “It happens to all of us, we have this magnificent scenario in our head, and we don't write enough down.”
Benjamin Fabi, a freelance paraplanner present at the conference, also said he had seen “loads of evidence of this ‘black hole’”.
He said: “Many files won't articulate objectives, merely planning considerations that match a particular solution.”
DB transfer files have been on the radar of the Financial Conduct Authority (FCA), which said in October that advice in more than half of the DB pension transfers it looked at, where the recommendation was to move the retirement pot, had been unsuitable or unclear.
From a total of 88 DB transfers analysed by the watchdog since October 2015, a mere 47 per cent were deemed suitable. The regulator found 17 per cent were unsuitable and in the remaining 36 per cent suitability was unclear.
The scrutiny of adviser files could increase further, as the regulator is looking at introducing a requirement for firms to provide a suitability report regardless of the outcome of advice.
maria.espadinha@ft.com
