Cost of advice for transferring out of a DB scheme

magpiecottage

agarnett wrote: »

Of course it stacks up. There are those who are set up to assist customers, and those who say they are and that they know best, but aren't, and don't.

In the same way no two IFAs are the same and no two Pension Transfer Specialists are the same, there are those who are competive, and there are those that scream blue murder because they can't compete and even some who are trying to spoil the market against discerning customer's interests.

So why don't you offer to advise on and arrange the transfor for the OP for, say, £2,000 then?


For those who are interested, about 18 months ago, an adviser I work with got into considerable difficulty at FOS over a case where somebody who told them she had been an actuary at an insurance company transferred her final salary pension and then complained that she did not understand the risks - despite all the rules being followed.

FOS was all set to uphold the complaint until I pointed out that she had waited too long to complain.

So the risks are very high and a prudent adviser will quote a price that reflects that risk, just as an insurance company would.

If you think you can get what you want cheaper - but, as dunstonh often warns, getting cheaper insurance does not mean you get the same insurance. There may well be an impact on quality - and if the adviser subsequently goes bust you may only get compensation of up to £50,000 from the FSCS whilst FOS can award a maximum of £150,000 on your £600,000 - and if you accept an Ombudsman's decision you can't go to court for the rest.

And that always assumes you actually do win.

The OP said they wanted low risk on the other thread. Transferring from a defined benefit to a defined contribution plan is never low risk.

agarnett

magpiecottage wrote: »

So why don't you offer to advise on and arrange the transfor for the OP for, say, £2,000 then?

Because I am not set up for it, but I know someone within a well known market name who was a few weeks ago.

I believe the DB pension transfer advice price increases of the past fortnight / three weeks are more likely a question of current demand, not of small-time IFA's Professional Indemnity insurance premiums.

It stands to reason that if as an IFA you are not able to control your PI premium, (or perhaps not able to take your own risk like the big boys?) then you are not fully in control of your own business destiny.

You can say you are, and you can say anyone that takes the risk is stupid, but there are those who obviously disagree.

The whole question of DB Transfers is an extremely interesting one in the current climate, because some CETVs being quoted are far higher than anyone dreamed - a bit like mortgage interest rates have been far lower than anyone dreamed, and of course for similar underlying reasons.

In such times, some people only dare creep outside their door and cautiously up a ladder for a bit to fix the roof for the next downpour, but others want to get out and make some real hay while the sun shines.

And so armed with a good CETV, do you call for a roofer or a haymaker?

magpiecottage

agarnett wrote: »

Because I am not set up for it

So why not get set up for it? You seem to think it is quite simple to do.

but I know someone within a well known market name who was a few weeks ago.

But not now? I wonder why?

[/quote]I believe the DB pension transfer advice price increases of the past fortnight / three weeks are more likely a question of current demand[/quote]You can believe all you want - that doesn't make it true.

not of small-time IFA's Professional Indemnity insurance premiums.

Do you know what the premiums are?
Are you also aware that this year's premium does not indemnify them against this year's advice but against this year's complaints. It will be another policy years down the line that they need to call on if there is a complaint about what they sell now.

And if the insurer sees the complaint coming, they will refuse to cover it from the next renewal, leaving the adviser to face it alone.

It stands to reason that if as an IFA you are not able to control your PI premium, (or perhaps not able to take your own risk like the big boys?) then you are not fully in control of your own business destiny.

That is a bit like saying if you cannot simply jump into a pool of crocodiles without fear of being eaten you are not in control of your own destiny.

You control your destiny by managing the risk.

And when it comes to the "big boys", the largest network of independent advisers shut up shop only last week because they could not control the risk.

You can say you are, and you can say anyone that takes the risk is stupid, but there are those who obviously disagree.

I have in the past awarded six figure sums to individuals who left defined benefit schemes in favour of defined contribution ones.

The last one I was involved in was a couple of months ago - I was asked to sort out how much was owed after an Ombudsman decision. The redress awarded was about £145K

The whole question of DB Transfers is an extremely interesting one in the current climate, because some CETVs being quoted are far higher than anyone dreamed - a bit like mortgage interest rates have been far lower than anyone dreamed, and of course for similar underlying reasons.

In such times, some people only dare creep outside their door and cautiously up a ladder for a bit to fix the roof for the next downpour, but others want to get out and make some real hay while the sun shines.

And so armed with a good CETV, do you call for a roofer or a haymaker?

I understand your logic.

However, the roofer does not have a liability for life once his job is complete. He can, at worst, rely on Section 14B of the Limitation Act to become free of any claims after fifteen years.

FOS can, and does, pursue advisers to the grave. It has no compunction about making them destitute over something that happened so long ago that they no longer have the evidence to defend it.

I would not want to take that risk.

agarnett

magpiecottage wrote: »

So why not get set up for it? You seem to think it is quite simple to do.

But not now? I wonder why?

Oh so you are feeling a bit touchy, and want to be sarcastic ... ?

I understand your logic.

If that were true I don't think you'd be giving it quite so much of the big I am about how much of an in-demand expert or God's gift to the great downtrodden unwashed that you might consider yourself to be.

When you worked out that £145K compensation, how much did you factor in that gilt yields have dropped through the floor during the no doubt months and years that it took that case to reach a conclusion? And that new institute life expectancy tables which have endured an unbelievably long gestation were finally published recently with quite remarkable increase in life expectancy?

How much was your fee for that zero risk activity? Or maybe it isn't zero risk and in fact there is a lifetime risk because you might have got the number wrong which the Ombudsman accepted from you, the expert ? What is £145K in relation to the true value today of what was actually lost by the complainant ? Did you approve someone else's projections or did you truly work some out from first principles using valid up to date assumptions as opposed to industry supplied ones ? Are you perhaps a current (CPD wise) professionally qualified actuary too? Some are, they tell me What they then do with their expertise is another story.

Why do you suppose I don't know about the premiums and working of PI insurance? I know well enough, but I simply do not care what IFAs are charged for PI. It is irrelevant to the customer. If an IFA says they can offer the requested advice and then spends half their time advising on why their unexpectedly high fee is fair in love or war, then what good is that to anyone? I'd rather see advisers like that realise that they can't afford the premiums and to step aside.

The more the better perhaps -so that some might then be tempted to try more socially useful productive vocations instead of kidding us that they have the knowledge we need.

I would not want to take that risk.

Then perhaps you and those IFAs you advise shouldn't take it, and then please might you all just step out of the way? All those who don't wish to enter the fray of DB Pension Transfers just take one step back and leave by the nearest exit with no shame attached. But the problem is, they don't. They'd rather stay and bleat on about how stupid it is.

This is a consumer forum - not an IFA forum on how to avoid destitution, nor is it a place for IFAs to lobby to get the rules changed back to the way IFAs like it so they can make a profit from zero risk activity.

I and most other consumers reading these forums, I dare say, have absolutely no care whatever about anyone making a living out of financial services becoming destitute, especially those who choose the snake oil specialty of Pension Transfers. Perhaps financial services practitioner destitution should happen a lot more than it does ... that might be said to be good karma by some!

And your comment about the roofer is base over apex I think. I was not advocating that anyone should employ a roofer when the sun shines over inflated CETVs. Roofer in my analogy = small time IFA = or ITB in Latin if you prefer ... imtodotri tifco bapips (roughly translatable as insufficiently motivated to do the right thing if constantly bleating about PI premiums)

bmm78

magpiecottage wrote: »

FOS can, and does, pursue advisers to the grave. It has no compunction about making them destitute over something that happened so long ago that they no longer have the evidence to defend it.

I imagine most advisers don't spend their spare time reading FOS rulings, but those that do can't fail to be alarmed by how much of a tightrope they are walking when giving transfer advice.

http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=32181

Link to a ruling I looked at recently. I don't have any strong opinion for or against the ruling (mainly because I haven't seen the full file and there are a lot of grey areas), but it does demonstrate key aspects of FOS' approach:

• Mis-sale unless proven otherwise
• Close scrutiny of Critical Yield in relation to Attitude to Risk
• Client is assumed to have limited knowledge unless proven otherwise
• Disclaimers and warnings in themselves are not effective protection against complaints

Again, not making any criticism of the FOS ruling, but the reality facing advisers is the majority of cases don't resemble CII case studies where everything is tied up in neat little packages. Firms either turn away 90% of potential business, or they quickly build a large book of potential open-ended liability that will need to be insured against indefinitely.

dunstonh

I imagine most advisers don't spend their spare time reading FOS rulings, but those that do can't fail to be alarmed by how much of a tightrope they are walking when giving transfer advice.

I make a habit of looking at the publications and decisions periodically and sometimes it scares the hell out of you. Some make you wonder how on earth we can keep going.

Link to a ruling I looked at recently. I don't have any strong opinion for or against the ruling (mainly because I haven't seen the full file and there are a lot of grey areas), but it does demonstrate key aspects of FOS' approach:
Mis-sale unless proven otherwise
Close scrutiny of Critical Yield in relation to Attitude to Risk
Client is assumed to have limited knowledge unless proven otherwise
Disclaimers and warnings in themselves are not effective protection against complaints

And those things tend to be ignored by some posters on this board who suggest that transfers out to SIPPs are a good move.

Firms either turn away 90% of potential business, or they quickly build a large book of potential open-ended liability that will need to be insured against indefinitely.

Or they ultimately get too large and the firm has to close down as it can no longer economically provide advice. Just as the UK's large advisory firm has done in the last two weeks. That was all because of the size of the potential liability (which was rumoured to be so big that it could bust the FSCS).

agarnett

dunstonh wrote: »

Or they ultimately get too large and the firm has to close down as it can no longer economically provide advice. Just as the UK's large advisory firm has done in the last two weeks. That was all because of the size of the potential liability (which was rumoured to be so big that it could bust the FSCS).

Who are you referring to please ? Sesame ? The same network whose databases full of our personal pensions data have allegedly* been sold to criminals ?

*dunstonh has taken particular issue with me writing this. The Daily Mail article actually says this:

[SIZE=-2]When speaking to our undercover reporter, B2C director Nick Sayer lied, claiming the firm’s financial information was primarily obtained from financial advice firm Sesame.

Sesame categorically denies having any relationship with Sayer or B2C. Indeed, the company worked closely with the Mail and independent IT experts to examine the data given to our reporters. Those experts have since confirmed it was not from Sesame’s database.

There is now an urgent investigation underway to establish how the information was obtained by B2C.[/SIZE]

There is in fact another Daily Mail article of similar date that says something stronger:

[SIZE=-2]When explaining where B2C got its data from, Sayer claimed it was all agreed under a secret deal with the financial advice network Sesame – which processes one in six mortgage applications in the UK.

Sesame furiously denies any deal with B2C or Sayer and says it does not sell its customers' data under any circumstances. Last night independent experts compared a sample of the data provided to the Mail with that from Sesame and confirmed the data was categorically not on Sesame's database.[/SIZE]

So dunstonh might not want to hear it, but we might read between those lines that Sayer says he primarily got data from Sesame sources and that Sesame deny it, and the Daily Mail and their IT experts have not found Sayer's data on any Sesame database that Sesame provided for inspection (or vice versa) and that the daily Mail have been moved to call Sayer a liar. What does that actually prove ? Does it prove Sayer is a liar ?

The best marketing databases are of course formed from other databases. Those source databases are effectively ingredients. They are next to useless on their own, but when mixed and processed with other data from other sources, and "cleaned", they can then become more and more powerful and their origins can be almost impossible to trace. My full name is Alfred Edward Garnett.

Who is to say that piece of my personal data comes from Wikipedia, from a BBC database, or from HMRC ? If it was deliberately misspelled with just one T in order to aid forensic inspection of illicitly obtained data, then that might be interesting to discover in someone else's database, but it isn't conclusive proof of anything, is it?

Anyway, back to my unexpurgated original response:

How did it become the largest IFA network - with the involvement of a rather lot of IFAs looking to belong to something - all in it together, I guess?

And who is Sesame's parent? Friends Life ? And who had an awkward moment last week with a false market in their shares ? Never mind - I am sure some in Friends Life knew they could correct the mistake and get the share price back up again

And who are they merging with ? Aviva ? And who has recently backtracked on even offering useful advice on their own products ?

And even you are not immune from business with certain of the above-named (judged by the numbers of files on your desk you sometimes refer to ?) - nothing personal - but you can't be an IFA unless you do business with the 'whole of market' I think ?

It isn't a valid market at all, is it ? It's a bloody stinking disgraceful mess created by dens of thieves, and even the best of you are up to your necks one way or the other :rotfl:

jamesd

bmm78 wrote: »

can't fail to be alarmed by how much of a tightrope they are walking when giving transfer advice.

Agreed.

The things that initially struck me about that case were:

1. 8.6% critical yield. Too high to be reasonable at medium risk, so the likely reduced benefits have to be justified by other gains elsewhere.

2. "The root of his complaint is that he is very cautious and he never takes risks" but classed as medium risk. The claim to never take risks is undoubtedly false - he's probably not invested in cash in his new defined contribution pension - and is inconsistent with his risk questionnaire answers but even so it's interesting.

The critical yield is the key factor that persuades me that it was reasonable to uphold the complaint. I'm also somewhat concerned that he may have been told about the scheme being in deficit as a persuasion tool.

XL's comments about growth exceeding the critical yield I mostly dismissed because that would be expected during one of the longer bull markets in history. I'm running at over 10% XIRR after costs in my workplace pension but that's with a higher risk tolerance and still a bull market not average result.

jamesd

agarnett wrote: »

Oh so you are feeling a bit touchy, and want to be sarcastic ... ?

Please be nice to her. She's both highly capable and entirely willing to advocate complaints when appropriate. She's a significant asset to this place.

jamesd

dunstonh wrote: »

And those things tend to be ignored by some posters on this board who suggest that transfers out to SIPPs are a good move.

In general posters here are pretty strong in suggesting not moving unless it's clear that the situation is likely to be positive due to the transfer values involved. Not always, but I don't think there are going to be many cases where a critical yield of even 7% would be considered as a worthwhile one to support a move, let alone 8.6%, barring some relatively unlikely cases like being close to state pension age and able to defer the state pension to get more than that, inflation-linked in addition.