Adviser fined £1.3m after pension transfer failures

Ibrahim5

Would be interesting to know the  percentage of steel workers that employed an IFA before this pension malarkey.

dunstonh

Ibrahim5 said:

Would be interesting to know the  percentage of steel workers that employed an IFA before this pension malarkey.

Why wouldn't a steelworker employ an IFA?

Ibrahim5

Because they have the security of a good DB pension. Or at least they used to.

dunstonh

Ibrahim5 said:

Because they have the security of a good DB pension. Or at least they used to.

Why does having a DB pension mean they wouldn't employ an IFA?

jamesd

marlot said:

Sounds like the advisor that many new posters on here would like to sign up

dunstonh said:

It is also ironic, that the firm in this action is exactly the type that many of the posters on this site that wanted a DB transfer (or still do) were looking for.

I don't agree. Even with very basic analysis here people routinely consider whether what a particular poster wants to do has a credible chance of meeting their objectives, and people aren't shy about telling them they aren't realistic.

Compared to even this person in a pub venue this adviser was criticised for not considering whether the objectives could be met by the transfer as well as not considering the client's whole financial circumstances or financial needs.

I'd say a better way of characterising what is wanted is:

1. proper high quality advice including an excellent understanding of the customer's risk tolerance, capacity for loss, financial situation and range of likely outcomes. The sort all of us should expect to get from every IFA.

2. where the adviser recommends against a transfer, sufficient information to have a good understanding* of why and then the full use of the pension freedoms to transfer against advice, if desired, rather than the actual or nearly actual market failure situation we're seeing at the moment.

* this aspect could be troublesome, because there are customers who will simply be incapable of understanding the advice. I think that there's room between understand, disagree and wish to transfer with IFA help and those who the IFA must refuse to help because it's clear that they don't understand and can't understand the potential outcomes.

jamesd

Deleted_User said:

In this particular case the firm and the advisor screwed up. I do think the individuals receiving the advice bear a lot  of responsibility.  Its their money.  Did they do due diligence on the firm? Did they understand how the advisor was paid and incentivized? Did they research the issues so they can ask the right questions?  Did they read and understand what was given to them? Did they look at a range of opinions? 

There's a vital question:

were the clients sufficiently capable to make those assessments?

In many cases I expect that the answer will be no, particularly in innumerate and also low IQ segments of a customer base. Part of the purpose of professionalisation of advice is to protect such clients.

dunstonh

jamesd said:

marlot said:

Sounds like the advisor that many new posters on here would like to sign up

dunstonh said:

It is also ironic, that the firm in this action is exactly the type that many of the posters on this site that wanted a DB transfer (or still do) were looking for.

I don't agree. Even with very basic analysis here people routinely consider whether what a particular poster wants to do has a credible chance of meeting their objectives, and people aren't shy about telling them they aren't realistic.

Compared to even this person in a pub venue this adviser was criticised for not considering whether the objectives could be met by the transfer as well as not considering the client's whole financial circumstances or financial needs.

I'd say a better way of characterising what is wanted is:

1. proper high quality advice including an excellent understanding of the customer's risk tolerance, capacity for loss, financial situation and range of likely outcomes. The sort all of us should expect to get from every IFA.

2. where the adviser recommends against a transfer, sufficient information to have a good understanding* of why and then the full use of the pension freedoms to transfer against advice, if desired, rather than the actual or nearly actual market failure situation we're seeing at the moment.

* this aspect could be troublesome, because there are customers who will simply be incapable of understanding the advice. I think that there's room between understand, disagree and wish to transfer with IFA help and those who the IFA must refuse to help because it's clear that they don't understand and can't understand the potential outcomes.

Just for clarification, I was not saying what he did was right.  It was not.  There are plenty of failings.
 It's just that we have seen many threads on here where people view the advice requirement as a complete waste of time for them and do not want it.   They want to transfer out and don't care what the adviser says.   He was effectively facilitating that sort of person.  

jamesd

HappyHarry said:

As an IFA, I charge a client a fee to do some work. It is in my best interest to charge a fee as I do not receive recompense from anywhere else.

In return for that fee, I will do the best work I can for my client.

I can't imagine a situation  where I would act against my client's best interest. They either pay me a fee or not. Why would I do something that is not in my client's best interest? I don't earn more for doing so.

Assuming that you act as I did in non-financial advice, seeking always to act properly, there are several ways you - and I - could still end up acting contrary to their best interest, including:

1. Having an understanding of the relative weights of their needs, desires and resources which isn't correctly aligned with their actual needs, desires and resources. Say higher priority on guaranteed and throughout lifetime income than they have, or lower inheritance motive. It's something of a soft skill rather than being subjectable to rigorous modelling.

2. The regulatory and financial environment in which the business operates. For example, whether insurance is priced at a level which makes it viable to offer a service that the client needs, or whether a product such as longevity insurance is even available in the UK market. Or whether the regulator places and insists that you place higher weight than the client does on say guaranteed income.

3. The FCA's prohibition on offering the clients options which they can choose between, with the FCA insisting that you must make one recommendation. In a nuanced field where there are many ranges of outcomes and uncertainties I think that this is often going to be contrary to the best interest of clients and remove an opportunity to catch some type 1 mismatches.

eskbanker

Malthusian said:
...people who need their brain looked at still usually manage to end up in the same room as a neurosurgeon...

Quite a few of them manage to end up posting on this forum

jamesd

dunstonh said:

Just for clarification, I was not saying what he did was right.  It was not.  There are plenty of failings.
 It's just that we have seen many threads on here where people view the advice requirement as a complete waste of time for them and do not want it.   They want to transfer out and don't care what the adviser says.   He was effectively facilitating that sort of person.  

Thanks, and yes, I read your post that way - I'm confident that neither you nor any regular IFA poster here would come close to the failings of the individual in this decision.

The advice requirement is perhaps more interesting because I wasn't a fan of it being added unconditionally to the original draft freedoms proposals but where advice is sought I want it to be of high quality.

I also recognise that quite a lot of people lack the level of numeracy and related understanding to even evaluate whether they need advice, and maybe some sort of knowledge or ability precondition might be used to better target requirements.

Part of my concerns about the advice requirement were that it might lead to the sort of situation we have now, with a regulator acting to inhibit transfers that the freedoms were intended to allow. Whether that's by explicitly saying that they were changing charging processes to try to make transfer advice unaffordable or creating a hostile regulatory environment for professionals and firms involved.

At the moment it's becoming my view that at least a substantial subset of firms should be required by law to accept all transfers unless fraud or serious financial misconduct is suspected, and also made immune from redress except for their own direct failings in relation to such transfers. Say NEST and the ten largest direct to consumer and ten largest advice-only providers. And that the advice requirement be removed. Redress protection is important, redress risk seems to be a significant driver of pension firms withdrawing from the market.