Increased due diligence is something that has been in the spotlight following the Berkeley Burke case – which set an industry standard in 2019 when the pensions company finally dropped its appeal against the Financial Ombudsman Service.
Berkeley Burke had been under fire for failing to provide adequate levels of due diligence for a client’s investment, which later turned out to be fraudulent.
Berkeley Burke argued that, although it had invested a client’s money into a scheme that ultimately turned out to be fraudulent, it had applied adequate levels of due diligence at the time.
It did appeal against the Fos ruling, but dropped the case due to insufficient funds, meaning that the ruling stood, setting an industry-wide precedent.
The new legislation fits into this picture, as it centres very much around due diligence.
Considering the reputation of Britain’s financial landscape, anything that the industry can do to ensure the financial security of their clients, and restore faith in what should be a transparent and trustworthy sector, is positive news.
More education needed?
Although the new rules will place the responsibility firmly in the hands of the financial experts when dealing with pensions transfers, we do still think that a rounded approach is best to combat pensions fraud and stop the scammers.
It has been a year since the cold-calling ban was introduced, and although this has helped to prevent a plethora of calls from British companies to pension holders, scammers do not usually listen to rules, and many people are still targeted by fraudsters who are hoping that they will not be aware of the ban.
Additionally, the cold-calling ban only applies to British companies, not those overseas who are pushing schemes to pension holders.
The education push by the government and the FCA needs to step up to ensure that all people, of all demographics, are aware of the tricks that scammers use to liberate people of their pension pots.
The FCA’s Scam Smart website is a great resource, but more outreach is required to reach those who do not rely on the internet or social media as much as others may do.
What else can be done?
While we welcome these proposed new rules, which boil down to increased due diligence for pensions transfers to Sipps or Qrops, there is more to be done.
Ending contingent charging would be a major step forward, in our opinion, although this is only one way to stop adviser bias when recommending pensions transfers.
Contingent charging is where financial advisers only get paid if a transfer proceeds, which – according to the FCA – creates a startling conflict of interest.
An FCA study found that 69 per cent of people were advised to transfer their money from secure, occupational DB schemes to riskier DC schemes, despite the fact that most consumers would have been better off staying with their original policy.