Are letters of authority a thing of the past?

A recent report by the Lang Cat found that LOAs are a significant barrier in the advice process and that transfers remain a massive source of frustration.

The Lang Cat tested the worst-case scenarios for time taken from submitting an LOA to getting full, satisfactory data and the timeframe often ran to several months. 

In the worst cases, firms were waiting over six months for the data they had asked for.

Speaking to FTAdviser, chartered financial planner Elliot Guthrie, said a huge improvement would be to see more providers accepting electronic signatures, or even scanned copies. 

He explained that the biggest pain with the LOA process is the time it takes to get information back.

A digital exchange of authority between adviser and provider, with the requisite level of security to prove the client’s authenticity, offers a far better way forward. James Jones-Tinsley, Barnett Waddingham

“I’ve got one with Phoenix that’s been outstanding for six  months for example which isn’t uncommon,” he said. 

“Pension administrators (Towers Watson, Mercer etc) are the worst for just being downright obstructive and unhelpful, and this is a sector that really needs their digital process being overhauled.

“So in short - more digital processes and improved customer service - I really hope consumer duty improves this, as ultimately clients will benefit by having information provided in a timely manner, and they’ll probably benefit from dealing with a less frustrated adviser.”

However, according to Mercer, this is already in place.

A spokesperson confirmed to FTAdviser that Mercer does accept signed images through its digital systems and would take a photo or image of a signed LOA if it was posted onto its digital site Contact Mercer Administration.

If this were received, Mercer would not ask for a hard inked copy.

“We are looking at other digital systems for items such as letters of engagement but have yet to fully implement these,” it said. 

Likewise, Phoenix said it accepts electronic LOAs across parts of the businesses, and is working at broadening that approach as part of its plan to enhance digital capability.

"For Phoenix Heritage business, we will always try to find an electronic solution to dealing with LOA, where we are able to do so," a spokesperson said. "We try to ensure that we process requests via our LOA work queue within six working days, but this is not always possible. 

"We continue to review and enhance our processes, and welcome any chance to review a case which is not being dealt with as we would expect. In relation to the instance mentioned below, which is taking much longer than we would like, if further details can be provided we would be more than happy to look at the particulars of this case."

Speaking to FTAdviser, Barnett Waddingham self-invested technical specialist James Jones-Tinsley, explained that the speed of transmission of an e-signature, when compared with the “increasing vagaries of the postal system”, provides the unquestionable reason why they work.

The law concerning the requirements for signing is based on case law, you cannot simply ask pension providers to overturn common law and allow electronic signatures. Richard Bishop, PFEP Wealth Management

“A digital exchange of authority between adviser and provider, with the requisite level of security to prove the client’s authenticity, offers a far better way forward," he said. 

“Arguably, that speed of transmission should be replicated as far as is reasonably practicable by the recipient, which might explain the reluctance of certain providers and scheme administrators to fully embrace the digital age, with its underlying requirement for them to ‘up their game’, rather than hide behind increasingly archaic service level agreements.”

Willis Towers Watson had not responded at the time of publication.

The law of the land

Elsewhere, PFEP Wealth Management managing director Richard Bishop argued the opposite, stating that advisers need to understand the legalities of the matter.

He explained that LOAs fall under the common law when advisers are an appointed agent with authority to access information and receive payments from investments or pensions.

“It forms a quasi-contract between the adviser and the client, much of agency law in the UK is derived from common law associated with contract law,” he said. 

“The law concerning the requirements for signing is based on case law, you cannot simply ask pension providers to overturn common law and allow electronic signatures.”

He added: “In addition, this is why providers ask for a fax or letter to be posted, they will have taken legal advice (counsels' opinion) on the legality of receiving LOAs and what would in the eyes of the law make the LOA valid.”

In an ideal world LOAs would be a thing of the past but for the foreseeable future they will remain a problem for all parties. Scott Philips, The Pension Lab

But Jones-Tinsley argued that in the days when paper-based written exchanges were the normal method of communication between advisers and providers, a signed LOA provided the necessary mechanism to allow an adviser access to their client’s records held with a provider – even though the speed of response did vary greatly.

“In today’s digital, hybrid-working, world – arguably accelerated by the effects of the Covid 19 pandemic – the need for an electronic substitute to a paper-based LOA is increasingly relevant,” he said. 

Jones-Tinsley explained that e-signatures are a good option – and such a solution is not confined to LOA. 

“The Covid 19 pandemic accelerated the decline of the ‘wet signature’ in all forms of documents, including legal paperwork, application forms, and even HMRC documentation,” he said.

“There is, therefore, no rational reason why providers should doggedly stick to a requirement for letters of authority to only be provided in manuscript form.”

But Bishop said the opinion will be based on current case law on what makes a "quasi-contract between the adviser and the client" legal.

What is the solution?

While e-signatures are one solution to the time aspect, Felix J Milton, chartered financial planner at Philip J Milton & Company, said although LOAs “are extremely frustrating”, he can’t foresee an easier way of allowing firms to receive information on a plan without some form of client interaction with the provider. 

“In an ideal world, the pensions dashboard would be something that could enable this for clients, who could via the dashboard click an option that says ‘let all my policies be viewable by XYZ firm with FCA number 123456’, '' he said. 

“That information could then feed into the provider's data so advisers could easily get information.”

Alternatively, he explained that an intervention like the Origo system could work but would need mass cooperation amongst providers.

Scott Phillips, founder of The Pension Lab, agreed as he explained that long term API access is the solution but this needs to be government mandated and will take time. 

“Origo have tried to develop a system to standardise LOAs but for various reasons have found it difficult to get provider buy-in. 

“Many providers have already invested in technology to improve their LOA processes internally and perhaps further budget for technical work is difficult to justify. They may also see it as a back door to open finance.”

Phillips explained that for The Pension Lab, its primary market is non-advised consolidation in the defined contribution pension space but in the process of conducting this business, it has done thousands of LOAs. 

Due to these volumes, it has automated the process of submitting LOAs with the aim to harness the technology it has built to support advisers.

 Why they still ask for signatures at all on LOAs I do not know, particularly given that typically the only companies who can request information are FCA authorised.  Scott Philips, The Pension Lab

“In an ideal world LOAs would be a thing of the past but for the foreseeable future they will remain a problem for all parties,” he said. 

“I think that open finance is the future, where data will be available electronically via API. That said, we’ve seen how long the government pension dashboard is taking to come to fruition, so do not hold out hope for API driven and complete data on all financial products for a number of years.”

He explained that among providers, the variance in completeness of data and time to provide the LOA responses is significant, especially as some providers want to send responses by post.

“This is not only bad for the environment but surely cannot be considered efficient or secure,” he said. 

“We can receive upwards of 100 letters in the post from [one provider] alone in a week and this is only the tip of the iceberg if our business develops as we expect.

“Further to this, there are some providers that do not accept requests via email and some still ask for information to be sent by fax.”

Philips said The Pension Lab has developed a system which works within the current framework, automating the process that would normally be undertaken manually. 

“The system automatically generates, sends and chases LOAs. It knows which providers are e-sig and wet sig and so dynamically sorts this for the user."

As he understands it, around 90 to 95 per cent of providers accept e-signatures as a norm but said whether the signature should be needed at all is the key question. 

“Workplace pension holders are now auto-enrolled so do not sign anything on setup of the pension and for many legacy pensions the signature is not available. 

“Therefore, for tens of millions of pensions in the UK, the provider doesn’t actually have a signature to compare it to.”

He added: “Why they still ask for signatures at all on LOAs I do not know, particularly given that typically the only companies who can request information are FCA authorised. A simple confirmation that the customer's identity has been confirmed should be sufficient.”

sonia.rach@ft.com

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