DB Pension transfer - IFA costs

jimi_man

ZingPowZing wrote: »

https://www.financial-ombudsman.org.uk/data-insight/ombudsman-decisions/SearchDecisions?Keyword=DB+pension+transfer&BusinessID=&IndustrySectorID=&DateFrom=2018-01-01&DateTo=2020-02-03&Url=&Comment=&SecurityID=b66ac7ba77e1df71627f7e726e9e8065625f69ad&Captcha=&Captcha_Timestamp=1580757624&start=30

This is a record of the Financial Ombudsman's history of decisions relating to the last two years of pension transfers. Please show me the cases where the FO has upheld a complaint after the adviser recommended not to transfer.

What I would say is that these pension freedoms have only been around for about four years, and investing pensions is a long term thing. I wouldn't have expected many of them to have gone sour at this early stage.

Suemac2a

bowlhead99 wrote: »

FWIW I certainly agree that point. You are only trying to do a fact find to work out what it could or should cost to implement your plan. £50k is overkill if that is what you are hearing. £10k would not be, given the risks of you going ahead with a bad plan and losing money due to your own fault even if the advisor doesn't think you should do it.

The advisor in looking at it might come up with a great plan and a positive recommendation and it might look similar to your own plan, or it might look different. When he engages with you before running the numbers he doesn't know what the ultimate advice will definitely be. It might be negative and you might turn out to be a nightmare client if he helps you do something that ends up going titsup.

You know you are not the sort of person who will blame the adviser for helping with a transfer if it goes wrong and you fall on hard times. ZPZ knows that in his own case too. However, the adviser does not know how you and ZPZ will ultimately fare and whether you will be back to complain despite being very nice people at the time of the advice. He knows what can happen to advisers who advise on pension transfers that allow clients to achieve bad outcomes, as he has read the FOS decision I posted above. So, he prices accordingly.

By prices accordingly, I mean he gives you a price that he knows is more than the man hours of work but gives him money towards his insurance premiums on the high value transfer for years to come. If the price is sky high he really doesn't want you to accept it because he would rather not have the work and the liability. He is trying to price himself out of the market - letting you down gently rather than giving a tempting low price which would make you think, heck it's only a day's market movements, I'll go for it.

I said last post on my last post, but wanted to return to say thank you for this sensible summation. This is exactly the helpful rationale for us to consider when fees are discussed with IFAs. For record yet again I am not trying to do this on the cheap, I just wanted to understand what a fair fee and service is when it is proposed to us. That has proved a slightly more contentious question than I imagined. At least we wont be walking in waving the FCA press release 😀..

[Deleted User]

bowlhead99 wrote: »

Thanks for disrespecting my motives and letting me waste my time explaining what happened in that case in the hope that it would save you time and effort doing the research yourself.

That *IS* example of a case against an adviser who recommended not to transfer

The client's complaint was that he was recommended to transfer. It was a frivolous complaint, because the client wanted some free money to compensate him for his own stupidity in losing his pensions.

The facts were that he was recommended NOT to transfer.

The Ombudsman agreed that the client had been recommended against transferring and that it was correct to advise against it.

The adviser let the client proceed on an insistent basis because the client really wanted to do it despite the advice. Ombudsman made the adviser compensate the investor anyway because reasons.

Please, don't stop reading after the first sentence. Read my commentary in the post above and perhaps the case itself and you will understand more of the points we are trying to make in this thread

Thanks

Ah right, the client made a false claim. Sorry, I should have read on.

I have now read the rest and it does raise some points:
1) The pension transfer happened four years before the Pensions Act.
2) The adviser split the commission from the transfer with the firm who introduced them, Spectrum, and they transferred out 7 other clients to this property scam on an insistent client basis. The adjudicator judged the negative recommendation to be a "papering exercise."
3) The adviser has gone into liquidation.

Even so, I don't agree with the decision. But it is hardly a usual case.

So that's one example. The FO is a shambles in my experience but systematic institutional bias? I don't think so.

cloud_dog

bowlhead99 wrote: »

Thanks for disrespecting my motives and letting me waste my time explaining what happened in that case in the hope that it would save you time and effort doing the research yourself.

Perhaps try sarcasm. No, wait....

bowlhead99

ZingPowZing wrote: »

Ok, is the first line a typo?

No, the first line is not a typo. The first line is the complaint.

The client is a liar, who lied that the advice firm recommended he transfer to a SIPP. In providing a public summary of the complaint, they always start by saying what the complaint was. In this case, the client complaint was that they recommended he transferred his safe pensions to a SIPP which lost money.

It was a dirty great lie, as they didn't recommend that course of action, and the ombudsman agreed they didn't. But lying got his case seen by someone who would probably not have considered it if the complaint had been "I was recommended NOT to invest in this money-losing financial product"

This is what the advisers are up against when they facilitate DB transfers. Years later, the client may swear blind that he didn't understand the risk and that the adviser misled him. Of course he understood the consequence of his actions. But when it comes down to it, he can say he didn't understand them or was never told. He has nothing to lose. If he gets lucky with the complaint by lying about the facts or the adviser doing something unrelated that the FOS doesn't think is good behaviour, he might be able to get hundreds of thousands of pounds. A whole retirement fund out of nothing.

The FOS is free for clients to use, as the regulated business pays for it. If it turns out he lied, he doesn't have to pay them for their distress and inconvenience, he just shrugs and says ah well it was worth a shot, could have been worth a few hundred grand, worth a try eh! Even if he's shown to be a liar, it doesn't matter, because the info released to the public domain is redacted and just calls him Mr D. So nobody knows he tried to scam the adviser out of a few hundred grand of redress and failed.

I have now read the rest and it does raise some points:
1) The pension transfer happened four years before the Pensions Act.
2) The adviser split the commission from the transfer with the firm who introduced them, Spectrum, and they transferred out 7 other clients to this property scam on an insistent client basis. The adjudicator judged the negative recommendation to be a "papering exercise."
3) The adviser has gone into liquidation.

1) The fact that it was before the 2015 Act is not what made the advice positive or negative and the Act doesn't mean the adviser now has a better defence against complaints. So your contention that advisers are making it up when they say they need to charge high fees or quit the market due to the potential of expensive complaints from people who demand transfers and later regret it, is just as invalid when looking at a pre or post 2015 case.

It was ruled on in 2019 despite the advice being much earlier. The long timeframe before the customer comes back to try it on with a complaint is one of the perils of providing advice on a risky transaction which the regulator has said will generally be initially assumed to be against the client's interest.

2) The adviser took a commission when putting the customer into the product that the customer wanted. The commission taken by the adviser didn't cause the failure of the underlying high risk investment and the monetary amount wasn't the difference between a good and bad overall outcome on the SIPP vs DB and DC workplace pensions.

Further up the thread, and on another thread back in October, you have said that you recommend prospective advice clients seek advice with a pricing structure that is contingent on the adviser giving a recommendation that lets you go ahead and do the transfer. The contingent fee for the adviser would function like a commission, payable only if they facilitate you getting the transfer you want. FOS identified this as being a conflict of interest, as it could bias the advisers into letting transfers happen that were not in the best interest of the client, which could mean the client ends up making themselves worse off by using the advice service versus not getting the advice and not being allowed to transfer. But it's the fee structure you avocate.

Even so, I don't agree with the decision. But it is hardly a usual case.

So that's one example.

It is indeed an example. And it makes the point that there are cases with upheld complaints filed many years after advice and which win huge payouts despite the judgements seeming counter-intuitive: "hey, I know you told him not to throw away his pension, but he threw away his pension, and you got paid along the way, so you must restore his pension".

These judgements drive the attitudes of advisers and advisers' PI insurers who are considering participation in the market and the pricing for their product. It's not rocket science. Fees are high because potential liability for complaints is high even if the customers lie when making their complaints, and from experience the reputable advisers know a proportion of the customers they help will try to screw them over to get free money.

Advisers make this point in various threads, that their advice comes with lifetime liability and that they know customers will lie to cash in on the liability. People on the threads who are anti-adviser say they doubt that would happen and the advisers are just charging unjustified fees.

But advisers and their compliance firms are much closer to the coal face of what happens with real life complaint cases and what has happened in FCA reviews and FOS adjudications across their network of industry contacts and in the material published by regulators, and all the FOS outcomes that are online. You can't be bothered to read those outcomes other than a few case studies, and demand someone else searches for you to find the examples of things you don't believe exist. I won't be looking up more of them for you, but you are welcome to read them all for yourself.

Upthread you said there were about 800 pension advice complaints dealt with by FOS in the last year or two and almost 40% were upheld. So if you want examples of particular circumstances, there will only be a few hundred to check whether FOS ruled with the client or the regulated firm.

In the cases where the FOS ruled on the side of the regulated firm, the firm still pays a £550 fee for the FOS going to the trouble of hearing the complaint, and some clients are serial moaners who will try anything for a free lunch. So it's not surprising that financial advice can't be offered really cheaply; the funding of liability cover and potential FOS fees will effectively price small customers out of the market.

ZingPowZing wrote: »

The FO is a shambles in my experience but systematic institutional bias? I don't think so.

Well, we quoted multiple sources that said the FCA believes the start point is that these transfers are not in a customer's interest and they would scrutinise such transfers.

You demanded examples of cases where the adviser was punished after they told a client not to do something; in the easy- to-find example above (smartphone and FOS website) the adviser was told that if they had really meant to treat the customer fairly in his best interests, they would have refused to help the customer transact full stop.

You don't think an adviser should be able to charge high fees, nor charge regardless of outcome, nor threaten your god-given right to transfer if you want. Because you believe that what the tabloids call the Pension Freedom Act means you should be able to do what you want with impunity and that nobody has a right to get in your way, you are free. But actually the FCA/ FOS says that treating customers right is about getting them an outcome that the professional adviser judges to be in the client's best interests. Not getting an outcome that the client claims to want but will probably regret later after it goes wrong.

Take it up with the FCA, rather than crucifying advisers for delivering the outcomes that the FCA has shown that it prefers.

Suemac2a

Jimi-man re 'oversensitive'

AnotherJoe wrote: »

Thanks for the thanks and in closing, yep the £10k or whatever it was IS a lot of money though perhaps not over 30 years, but that fee is effectively determined by the regulator.
However, fundamentally, I'm still not sure you've taken on the fact that £10k in the context of managing £800k is indeed chicken feed.


I don't know what I'm up today, I thought I'd be down, maybe at a guess £50k up, but heck i could be down £100k tomorrow. If £10k fakes you out so much you arent psychologically ready to be managing that amount of money (was it £800k x 2?).

I'm not generally known for being oversensitive, so I considered my response. Firstly a potential 3% of £800k is neither £10k nor 'chickenfeed' (which I feel is a pretty cavalier and inflammatory term in the context of discussing important and potentially life-changing financial risk). I am not 'faked out', although trying to get a sensible answer to fee rationale other than 'but its a drop in the ocean' was admittedly frustrating. I now understand that one factor is that the PI premiums /liability increase proportionately to the TV, so thats good. I do feel being told I am not 'psychologically ready' to manage my own financial affairs simply by being prudent and asking questions to avoid being overcharged is quite insulting. Whatever happened to 'take care of the pennies and the pounds etc'? What site are we on again? :huh::huh:

[Deleted User]

Any oversensitivity on this thread has been seen in the over-reaction to the OPs quite sensible appeal for understanding of financial advisers' charges. The impatience, condescension, sarcasm, deflection, scapegoating of the regulator and other bogosity says little about Suemac2a, quite a lot about the industry's lingering sense of entitlement to the fruits of your pension. The equanimity and forbearance shown throughout her introductory thread has been commendable.

[Deleted User]

Having first-hand experience of the FO's incompetence and ability to draw the wrong conclusion, I'm not altogether surprised by the case picked out by bowlhead. But to accuse the regulator of systematic bias is a far more serious charge to lay at their door, and not borne out by his example.
The Ombudsman considered special circumstances that bowlhead overlooked in his summary. Yes, the client was advised not to transfer, but the adjudicator judged their negative recommendation to be a "papering exercise." It was one of eight that the adviser helped to parachute into an obscure, unregulated product. Presumably all eight have lost a fortune and the adviser firm has gone into liquidation. Still, I'm sure they were not representative of the financial advice industry as a whole, any more than the client or the product were characteristic of the half-million DB transfers.
I take jimi_man's point that we are only four years into pension freedom, that there is the possibility of many more cases emerging in the fullness of time; but if they do, my sense is that the complaints will more likely resemble another case I noticed while looking through their site, where an untouched pension entrusted to an adviser for twenty years was worth less than at the outset. The corrosive potential of ongoing fees and charges is clearly a subject of concern to the FCA:
https://citywire.co.uk/wealth-manager/news/fca-to-clamp-down-on-expensive-and-conflicted-ongoing-advice-fees/a1254558
So, it seems to me that the FCA are worried and alarmed that otherwise viable DB pension transfers could be hobbled and, ultimately hollowed out by excessive charges. Otherwise, how to explain the change in the FCA's stance where, two years ago, they took "no view" on the merit of a DB transfer, and now say that nine-out-of-ten are not suitable?
Thus, while starting with good intentions when appointing financial advisers the gatekeepers to DB pensions, the FCA totally underestimated the liklihood of them acting in their own interests.

And now we're in this mess.

MarkCarnage

Some thoughts....

The FCA and Ombudsman don't appear to be operating in a joined up world....I agree that a number of Ombudsman decisions appear illogical or inconsistent.

The FCA seem to be indulging in Boris Johnson's 'have cake and eat it' fantasies at times as a result. Their changes in stance are reflected in the very significant upward shifts in PI costs, which are not single year, but multi year once business has been transacted. Meanwhile, they chirp on piously about what the cost should be, which doesn't seem to take account of the increased costs they have effectively imposed. The logical response from professional IFAs will probably just be to:

1) Withdraw from the market
2) Increase fees significantly
3) Put other constraints such as minimum age and CETV amounts in
4) Quote at price levels that are designed to be a deterrent for most

At the root of the problem is the two extremes, fraudulent or at best unethical advisers and customers who are lying chancers at the other. Those in the middle, which are the vast majority, pay the costs. A broken system.

The irony is, as I've commented before, is that there is a wider subset of viable transfers due to the very differing constraints and risk appetites of large DB pension funds and a number of individuals who have benefits in them.

Therefore, I'm afraid that a quote of between £5k and £10k for a CETV of c£800k does look increasingly like the norm. As commented, it amounts to around 1% or a little less, which to me doesn't seem egregious given the work and risks involved - some of which appear to be imposed on an ex post basis by our useless regulator.

I worked for many years in a senior role in investment strategy and management for a very large pension fund and have assisted with others. I have never been an IFA and would condemn the practices employed in the bad old days by a significant number of them. However, it's not too difficult to find a professional adviser who will do a good job. Like any good professional in any field, you have to pay the going rate.

The FCA should concentrate on quickly and effectively dealing with the fraudsters and those who sail very close to that line.

jimi_man

One of the main problems that I can see in this area for consumers… is consumers. They are their own worst enemy. Back in the 80’s and early 90’s when pension freedoms were relaxed in order to reduce the pressure on the state, people were encouraged to transfer out of their cushy employer pensions and into private ones, where FAs promised undreamed of wealth which they were wholly unable to deliver. Greed ruled. I and many of my colleagues were encouraged to leave our apparently sad and pathetic Public Sector DB schemes and invest in some amazing scheme where men in double breasted suits and large lapels, persuaded us with glossy brochures, expensive lunches and lots of champagne to join them. Fortunately I resisted, however lots didn’t. Fast forward quite a few years and it all went sour with loads of lawsuits and compensation.

The fallout from that is that there is a wariness about the same thing happening again with these new pension freedoms. Whilst not exactly the same, it is very similar with people being encouraged to leave the comfortable safety net of their DB guaranteed pensions to go it alone against the vagaries of the stock market. The problem has been compounded by the gilt yields meaning the rates offered are huge, and secondly, the stock market is going through a cycle that is reasonably benevolent to investors encouraging a more ‘DIY’ approach, since you’d have to be quite unlucky not to make any money from the market at the moment. This, coupled with the infancy of the scheme (transfers grew exponentially from 2016-2017) is probably why there are few claims at the moment. That’s not to say that there won’t be in 20 years’ time should there be a market correction/other events.

However this time the Govt has passed on the responsibility to others to regulate the transfers and with a distant memory of what happened previously, well I can quite understand why IFAs are so cautious to approve transfers. Unfortunately with consumers essentially being greedy, there is a disconnect between their expectations and what IFAs will approve leading to what many perceive as a problem, when in fact there wouldn’t be a problem if they weren’t so greedy.