Cost and value of advice in Port Talbot

taibach

Al Rush and I drove down to Wales yesterday and spent a day in the Taibach Rugby club at the invitation of the moderators of the BSPS Facebook groups.

It was helpful to understand a little of what it’s like in Port Talbot. Al grew up there and many of the steel-workers we met knew Al from school. Thanks to the club for making us so welcome and supplying us with the bottomless cups of coffee and tea we all consumed!

It is not until you sit within a stone’s throw of the factory gates that you can understand how important the Port Talbot Steel Works is to the communities of the town – such as Taibach.


What we found

We did not meet great numbers of members, but we were busy for seven hours with small groups wanting individual help. We were not there to tell people what to do but to help them find good financial advisers as they thought about their options (including the option to transfer).

We found

  1. That those people who had met advisers had no benchmark for judging either the quality of the advice or its cost
  2. That there was general confusion about value for what was being paid for advice,  implementation and ongoing servicing.
  3. That there was confusion about whether the advisers were offering advice or simply outsourcing advice to third parties (outsourcing).

Costs

Some people we met had shopped around and got wildly carrying prices and solutions. We found little evidence of advisers suggesting anything other than transfers. The cost of advice, transaction and ongoing service was generally expressed as a percentage of the transfer value and was typically 2% of the CETV for implementation and 1% for ongoing advice (paid on top of product fees of c1%). The average transfer value of those we spoke to was £350,000.

We did not see any justification for these costs, though one gentleman who asked for a justification of a 2% up front charge was told that this was what the FCA suggested.


Value

We did not see any evidence of cash-flow modelling by advisers. Most people we asked, found it hard to explain the basis of the adviser’s recommendation and gave as reason for transfer, it was what they wanted.

Most people had been recommended insured products, typically from Zurich, Prudential or Royal London. We found a lot of confusion – especially among those looking at using Prudential’s Prufund, more than one person we met thought it was giving a guaranteed return (of around 5%).

We found little understanding of the risks of drawdown. We did not hear one mention of annuities. While people were generally aware about the PPF, BSPS and BSPS2, we found there was little awareness of the risks of what they were transferring to and considerable trust that the financial adviser would take care.

One person we talked to, thought he had spoken to three tied representatives of Zurich, Prudential and Old Mutual. He could only articulate the advice he got in terms of the solution presented.


Outsourcing

There appear to be three kinds of advisers operating in Port Talbot.

  1. Travelling advisers who turn up from other parts of the country, offer an incentive for meeting (chicken in a basket), conduct advice sessions and then are away.
  2. Local advisers who do not have the qualifications to advise on transfers and who outsource to specialists who provide the certificate needed for the trustees to release funds
  3. Local advisers who do the work themselves.

We met with local advisers doing the work themselves but not with the (1) and (2). Coincidentally, the FCA were reported on making a pronouncement on the state of the market that drew similar conclusions (Megan Butler as reported in New Model Adviser).

‘We often found the route cause of a lot of these issues related to the business model, the business model between the firm and sometimes the specialist transfer firm. In part some firms which had seen significant growth in their DB transfer business had defaulted to a commoditised, industrialised process, an outsourced process perhaps, not focused on the client’s individual needs,’


Conclusions

We did not see enough people to make any general statements, but what we saw concerned us.

The advice given by the trustees to use unbiased.co.uk is not being heeded. The market for advice is forming around availability of advisers not around suitability. We found a low level of understanding of cost and value and a confusion about where the advice was coming from.

Considering the sums involved, we see a considerable transfer of value from member’s pension rights to the advisory community and on to pension providers. The concept of “independence” is not high on the agenda and most advisers talked of advisers as gateways to getting their hands on their money. There was little awareness of the contracts that members were entering into with advisers or people’s rights to move away from advisers and cancel the advisory agreements they were signing.Al

We were not there to discuss the quality of the decisions being taken, though Al did valiantly talk with members about their future cash flow requirements.

We were there to help people meet good advisers – and they did. In Al they saw how things could be done and though Al is not putting himself forward, we have now met advisers who have an approach to the problem that offered a high quality of service at a rather more reasonable price than what was generally reported from those we spoke to.

There are some 43,000 steelworkers who are eligible for a CETV from BSPS. All of them should be looking at this option and most will need to take advice on whether it is right for them, and if so- what to do next. There are rather less qualified advisers to help them.

If Steel-workers want help with signposting to good quality advisers, we can now help, though we cannot advertise these generally.

If any BSPS member wants help with finding an adviser, they should contact henry.tapper@pensionplaypen.com or Al at al advice@yourwealthcare.co.uk. If they need more help with their options , they can speak to TPAS on 0300 123 1047 or the helpline provided by BSPS.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, pensions and tagged , , , , , , , . Bookmark the permalink.

6 Responses to Cost and value of advice in Port Talbot

  1. John Mather says:

    Henry
    Excellent well meaning project but what change would give greatest impact?

    How many of these people are still in service and what was the age of your sample?

    Had any used the free Government services before talking to you?
    Could any explain what they understood what the pension would pay and when?
    What other savings did they have?

    One of the greatest vulnerabilities of members is caused by their own apathy which results in ignorance and then reliance on the first travelling salesman for information. How can you encourage education of the members?

    How many advisers were Chartered or Fellows.? How many had pension transfer qualifications?

    How many offered cash flow planning?
    What fee would you think would be reasonable?
    Average ( Ave temperature could have head in the oven and feet in the fridge) £350k is not helpful what was the promised benefit and what do you think is the probability of happening

    The challenge find the change that would give greatest impact?

    Liked by 1 person

    • henry tapper says:

      We could only do what we could in one day. It was a holiday for us – we were not being paid nor looking for work.

      We were there to help people as we could. The people we saw were not interested in titles, they wanted action, they were afraid they might lose out and they were showing a lot of trust in advisers. We also sensed an awkwardness among the people we spoke to , that they didn’t quite know what they were buying.

      While 3500 IFAs are in PFAS advisers are in Birmingham, I wish a few more were in Port Talbot.

      Liked by 1 person

  2. Ian Brewer says:

    Henry – What you saw and heard is the tip of the iceberg and I am sorry to say this but advisers who are targeting these workers through facebook and other websites who are claiming to be appointed advisers of the British steel pension fund with branded sites are vultures. If any British Steelworkers are reading this hold fire – do not rush in and if anything do not go with anybody who wants to charge 1% let alone 2% with ongoing charges because based on a pot of 350k mentioned in Henry article that a lot of money to charge but if it’s taken from the pot it will end up being a great deal more due to the power of compound interest.

    Liked by 1 person

  3. Adrian Boulding says:

    This amply demonstrates the sheer scale of the mountain that financial education needs to climb. Even after several thousand pounds worth of one to one financial advice the poor steelworker still has little grasp of the complicated issue they face and the long term consequences of the decision they are about to take.

    No wonder people are calling for more and better governed default pathways through the minefield of financial services

    Adrian

    Liked by 1 person

    • henry tapper says:

      It also shows how little we understand the risks trustees create for members when pension restructuring occurs. We must ask questions about the resource put into helping members with advice , as opposed to guidance!

      Like

  4. John Mather says:

    Surely the risk is introduced much earlier as there is no real plan to deal with the mortality of the FIRM. This is despite the regular experience and the distortions introduced by lunatic accounting where the only beneficiary is the Debt Management Office flogging Government Debt.

    We need a plan that deals with the death of the company and built in from outset. DB and the protection fund would be far more sustainable if the pension benefits provided were limited to say 1.5x national average income. Top ups would be on a DC individual basis with flat rate tax subsidy. This is the market the qualified IFA would be employed at negotiated fees. The opportunistic policy flogger would find it hard to exploit the educated.

    If DB was more robust then I would give up trying to educate (admit it your days experience proves that the poorly educated members need to be protected against themselves) then you can ban transfers as the objective is to provide an income for life. I would like to see no reduction for a spouse benefit

    The emphasis would then be on providing for the most vulnerable in society rather than uplifted 60ths for the already rich confirmed by the remuneration committee of the likes of RBS

    We could start with the MP Scheme where it seems that “Animal Farm” was the basis of the real manifesto.

    http://rsif.royalsocietypublishing.org/content/12/106/20150120

    Liked by 1 person

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