Defined BenefitFeb 20 2019

Just 10 IFAs rated OK to advise on pension transfers

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Just 10 IFAs rated OK to advise on pension transfers

Consultancy firms LCP and Willis Towers Watson, which help trustees and companies, told FTAdviser that due to this restriction, plus the need to be able to process a large volume of cases, there are less than 10 firms in the country suited to be hired by pension schemes.

Stewart Patterson, director of retirement at Willis Towers Watson, said: "I haven't seen any pension schemes or employers initiated exercises go anywhere near contingent charging. It doesn't even pass the sniff test.

"None of the firms that we put in front of our clients would be offering those sorts of fees."

Contingent charging means a client only pays for the advice if they go ahead with the recommended course of action. In the case of pension transfers, the adviser won't get paid unless the pension is transferred.

An outright advice charge, on the other hand, would mean the adviser gets paid for the advice regardless of the outcome.

Jonathan Camfield, partner at LCP - consultancy firm which advises more than 40 per cent of the FTSE100 companies -, goes further and said trustees and employers also don't appoint vertically integrated advice firms.

These businesses - which often provide funds and platforms, as well as financial advice -, don't have transparent fee structures, he noted.

He said: "The main concern that we have with it is that enables high charges, with layers and layers of them, that means that funds that are transferred are losing more money than they need to through more expensive charges."

The trend in trustees appointing financial advice firms to help their members increased after the British Steel transfer debacle, he explained.

Mr Camfield added: "Until recently, trustees were very reticent to help members by appointing a financial adviser. They were concerned that it wasn't their role and that it would encourage people to transfer out.

"But now we see a number of trustee boards saying that the risk from contingent charging and own fund transfers is so significant that they want to put in place their own financial adviser firm that doesn't have those features, so that they can be sure that their members have access to advice that they are comfortable with."

Mr Camfield was involved in four appointments of advice firms in the last 12 months by trustees, which was a first, he said.

He explained that trustees and employers "don't like the idea of contingent charging and own fund transfers", and they prefer that these practices aren't available.

"They certainly don't want to be seen endorsing a firm that operates on that basis because they see it as conflict of interest," he argued.

Mr Patterson said that vertically integrated advice firms are more of a grey area than contingent charging, and it can be managed as long as there is appropriate safeguards and Chinese walls are in place.

Both consultants agree that there are less than 10 advice firms in the UK market suited for this kind of exercises.

Mr Camfield said: "When trustees want to appoint a financial advice firm, it is really hard for them to know which ones don't do contingent charging, have own funds and are set up to really understand what is like to work on a bulk basis with trustees and employers.

"There are less than 10 firms like that in the market. That is our shortlist, we will typically help them with the tender process, and then the trustee or the employer will choose one firm which will then familiarise themselves with the detail of the scheme."

Mr Patterson has a similar experience.

He said: "Our long list we rack around 10, 12 firms, but we know realistically the shortlist will come down to the same half a dozen firms. We deliberately cast the net a bit wider in case there are any new players coming in to the market.

"They are looking for firms which are reputable in this area, which have experience, who don't have contingent charging. For those reasons, it often comes to a similar short list."

Mr Camfield revealed he is often approached by firms who want to be included in the consultant's shortlist.

He said: "They're bold. There is a big brand firm who approached us with a list of top 20 pension funds by number of transfers that they had advised over the last 12 months.

"The big banks were there, the big industrials, the oil companies, and they said that if we advise any of these clients - which we do – to contact them, because they had great success helping your members over the last 12 months."

He declined their offer, since the firm does contingent charging and has own funds.

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said: "Their stance does not surprise me given the issues recently with the British Steel saga where contingent charging was involved. 

"I think it is the right approach and firms should not be giving this kind of advice for 'free' until a positive recommendation is made.

"Clients need to be aware that this area of advice is laborious and high risk both for the client and the adviser so a separate fee should be required for the advice and for implementation of the transfer.

"If the client does not wish to use the advice firm to transfer and just want the advice, the firm's pricing structure should reflect this and more importantly be prepared to sign the adviser declaration too to confirm they have given the member advice, regardless of it being positive or negative recommendation to transfer. 

"Currently, most firms do not sign this declaration unless the member also uses them to transfer which should not be the case."

maria.espadinha@ft.com