A code of good practice for transfer advice?


lauren-characterWe are rubbish at financial risk and we know it. We take decisions on financial matters with as much confidence as betting on the horses and if our horse falls at the first we blame everyone but ourselves!

Small wonder that many financial advisers look to de-risking their businesses as discretionary fund managers or their agents. Exposure to something going wrong is limited and payment is certain.

At the other end of the risk spectrum are advisers helping people with the really difficult choices that surround guarantees.

I spent some of yesterday with Phil Young who manages a compliance service for financial advisers known as 360. We talked about the need people have to understand the risk within their “guaranteed” products and how little we explain what the market calls “credit risk”, the risk of guarantees being broken.

Phil is very smart about priorities and taught me something that I once knew and have since forgotten. Good advisers understand people’s objectives, I’d go further and the best advisers get their clients to understand their objectives. What a client wants and needs are of course different things and part of the job of a financial adviser is to help people prioritise their needs, often deferring immediate gratification and insuring against future peril.

The degree of certainty needed to achieve long term goals varies from person to person, some can afford to take risk and some like to take risk and some are risk averse to the extent that risk can physically make them sick. So financial objectives involve understanding what can realistically be expected from the structuring of retirement savings.

It is clear that most people want a replacement income in retirement , but it is not certain they want that income to be guaranteed. If the income is guaranteed, how good is that guarantee. In yesterday’s blog I looked at ways of incorporating risk analysis to get a simple measure for how likely a pension fund was to meet its obligations, make every payment to you as agreed.

If someone’s financial objectives are top of the ladder in considering “what to do” about planning retirement income, risk must be second.

A simple yes/no/maybe answer using a transfer value analysis system which does not take into account someone’s objectives and a total understanding of risk, is an insufficient basis on which to take a decision.

And yet much analysis we see focus on finger in the air projections which rely heavily on fund recommendations. The reliance on silver bullets from fund picking is a subtle risk transfer from the adviser to the fund manager and beyond that to markets.

Similarly a simple yes/no/maybe answer using a transfer value analysis system is

One learned actuarial friend explained the reason for active funds was to give trustees someone to blame when he screwed up. Blaming fund managers for not meeting the targets set by actuaries or advisers is second only to the old chestnut “irrational markets”.

To return to my racing analogy, and we are only weeks from Cheltenham, when a horse falls, blame the jockey, the trainer even the horse, but never blame yourself for backing it!

I want to see more advisers advising people about their objectives and the risks they are taking meeting them, whether those risks are not saving, or insuring or simply taking too much or too little risk in their investments , for their risk appetite.

Phil and I agreed to work to a common goal to make this happen in one area of the market we see as particularly in need of improvement, the provision of advice to people on whether to exchange defined benefit pension rights for rights that could be more secure (annuities or state pension ) or less secure, drawdown- or thinking ahead – CDC.

We didn’t have a silver bullet but we discussed the work of Princess Margaret Snowden OBE and what she has done to create a code for benefit consultants managing enhanced transfer projects; we agreed that what is needed is a code of conduct within which advisers can advise with a degree of certainty and without the risk of regulatory or client litigation.

Fundamental to our conversation was our agreement that what is good for a client must be good for an adviser- not the other way round.

Trustees of occupational pension schemes need good advice to be given to members about risk, especially when coming to the point when they exercise the new pension freedoms.

Those who advise trustees and those who advise members spend too little time talking to each other. Phil and I agreed to talk more.

I’d be pleased to hear from anyone who would be interested in joining us in looking at what a code of good practice for transfer advice could look like.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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11 Responses to A code of good practice for transfer advice?

  1. Michelle Cracknell says:

    Is it possible to extend it to warn/empower people who are being targeted and tempted to cash in their DC pension pot to invest outside a pension. In some cases, they could have made the investment in the pension wrapper but in the worse case they are being tempted into unregulated, unauthorised or even non existent investments

  2. Alan Chaplin says:

    hopefully the pensions regulator is listening – they have a consultation out …


  3. Andrew Johnston says:

    I would be interested in being involved with the discussion on a code of conduct

  4. Not sure if you would be interested in assistance from QROPS Trustees in Gibraltar but happy to contribute.

  5. A lot of the pension transfer scams will come from offshore and UK residents are already being targetted by people selling QROPS

    • To answer this comment, QROPS is a viable option for those of your clients who have UK pension rights and have informed you they intend to leave the UK on a permanent basis , in fact it could be considered bad advice if you do not include this option. It is down to the Adviser to undertake the proper due diligence and research for a QROPS provider as with any potential product. As a Trustee of QROPS, Fiduciary are not allowed to provide financial or tax advice, however, have a duty to ensure the advice given is in the interest of the client. We are highly regulated in Gibraltar by both HMRC and our own regulators.

  6. henry tapper says:

    I am glad that QROPS have been mentioned. They are products that particularly need to be covered by a code as they can be both well used and mightily abused!

  7. henry tapper says:

    Michelle, I’d like to think that a code for advisers on transfers could be used as a template for other financial decisions, whether it is an adviser or a consumer taking the decisions. Decision is such a harsh word- perhaps I mean the choice as I’d hope that guidance would have narrowed things down.

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