Pension Advice; it’s all about getting paid.

getting paid

I have read and listened to a lot about professional integrity.  Having been an IFA and being now a fee-based consultant, I know that the first thought you go to bed with (and wake up with) is “how am I going to get paid?”

The second thought, that nags away at you at 2pm is “will I have to pay that money back?” or even worse “will I have to pay the money back and pay compensation if things go wrong?”

This is not unique to financial advisers , it is a problem for all professional service providers whether they are advising on money or the construction of a bridge.

Getting paid requires a need

Last week, Rory Percival told a group of advisers at a Prudential function that they should produce reports each time they advise a client to stick with a defined benefit (DB) pension, as well as when they encourage them to transfer out.

“giving advice to stay is probably as risky as giving advice to transfer.  Personally, I think you should do that more formally, and write the client a letter or an email explaining that [opinion].

So let me put this through my “getting paid” test. In what circumstances will someone pay me to tell them to do nothing? Frankly, I can only see one. If your engagement letter with the client, signed prior to a decision being made makes it clear that you expect to be paid, whatever the outcome of your research, and your client signs an agreement to that effect, then you are in the business of advice.

Working with Al Rush, I see how he uses his judgement (based on experience) to give guidance to a number of people. That guidance is free. Al only takes on clients who are prepared to pay him and -let’s be frank, most people will not sign a letter to agree to pay for a recommendation to do nothing. I do not blame any adviser for refusing to advise people who will not pay – especially when there is no need for the adviser to be paid.

A very small number of professional people will pay advisers to validate a decision to stay in a final salary scheme, but frankly most – like me – are prepared to take that decision without advice.

Getting paid requires a budget

If an adviser has established a need- typically the need to take control of a pension away from trustees and self-manage the cash-equivalent. The next issue is getting paid for the advisory risk, execution and ongoing management.

As Brian Gannon points out when I asked the question , “why are workplace pensions excluded from transfer advice?”

Advisers need to be paid for the advice, and if the advice is to transfer then usually the cost of advice would be several thousand pounds. In almost every case that I have ever dealt with the member has wanted the cost of advice to be taken from the pension funds transferred.

A lot of workplace pension providers do not allow advisers to take their fee from the transferred funds. As an example, and not to single them out, but Standard Life’s good to go does not permit adviser fees, and nor do i believe does NEST.

So given most ordinary folk do not have several thousand pounds to spare they will often tell the adviser they do not want to consider schemes which do not allow for the cost of transfer advice to be paid to the adviser.

It’s all very well – people like me asking for “whole of market” solutions , but if people like me aren’t prepared to pay for advice out of taxed pounds with VAT on top, then the advice should rightly be focussed on products that are accessible within a client’s budget.

This begs a second question – why do occupational pension schemes not compete with SIPPs to pay advisers from the funds, a question I am asking operators right now.

Keeping the pay requires “value for the money”

This is why some financial advisers stay in business and others don’t. Advisers who act with professional integrity do not just have the qualifications, they live by them. Professional Integrity keeps advisers from taking money which they cannot justify in terms of labour or risk taken or skill displayed.

Much of what I and Al found on our travels displayed no integrity in the advice offered. I very much doubt that many of the advisers named to us – would withstand a thematic review from the FCA. Some of the wealth managers we heard of, are no more than lead generators for others, yet they were expecting to be paid as advisors.

We have no difficulty in talking to the regulators about this. The vulnerability of steel men to financial fraud at this “Time to Choose” requires that we do.

If you do not offer value for money, you- as an advisor – have not got a sustainable business plan. You may have a plan which allows you to run away to Spain – but you do not have a plan that will enable you to build your practice in your local community, as many good advisers do.

It’s all about getting paid.

Advice should be paid for, advice should be affordable and advice should offer value for the money paid to the advisor.

That is all there is to it. It’s all about getting paid.

When someone walked into the room we were in , in Port Talbot, the first thing I saw them do was assess us – work out what we were about. We told people we would not be paid and we would not tell them what to do. “I was on holiday, Al was giving  up his time for free”.

Our terms of business were clear “why are you here?” asked two people directly. For me the answer was to find out what was happening.

Our conclusions were that some people were getting value for money, most of the people we spoke to weren’t. There was little quality control – chicken in a basket saw to that.

I want to deal with an adviser who is commercially minded, who makes it clear he or she wants to be paid and will only deal with me on their terms. I am not alone, if it’s a take it or leave it offer, I know where I am.

Paying clients their pension

It’s all about getting paid. If you wind that back, you can see the essential choice for the steel men is

“do you want to get paid a pension, or do you want to pay yourself?”

The majority of steel men with that choice are choosing to pay themselves  – with the help of an adviser. That’s the pension freedom they have been given as a right.

That places a lifetime responsibility on the adviser. That is why advisers need to be properly paid and be accountable for the work they do.

poll bsps

Poll on Facebook – late October

A lot of money is being paid to financial advisers by the deferred  members of BSPS, the advisers are getting paid , will they make sure their clients are?


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in BSPS, dc pensions, de-risking, pensions. Bookmark the permalink.

4 Responses to Pension Advice; it’s all about getting paid.

  1. John Mather says:

    I see no compensation paid by actuaries, lawyers and trustees for getting the fund into a position where it is not able to fulfill the promises made.

    The act of advising to stay with DB is not doing nothing I think the Prudential is right a report is required to make clear and evidence the reasoning behind the advice. Sometimes clients have selective amnesia with the benefit of hindsight as do critics.

    Advice is rarely given without looking at the whole picture and backed up with a lifetime cash flow projection. This is the first step to regular review of objectives, changing attitudes to risk, shifting legislation and results so far

    Adviser skills have moved on in the last 20 years so past advisers cannot project experience to the present and claim to be knowledgeable you might be surprised.

    Excess “getting paid’ would need a comparison between the rewards received by pension lawyers actuaries and advisers in their paypackage

    Adviser costs of doing business have escalated substantially since 1988 much of this costs have been absorbed by the adviser businesses and income levels have declined substantially.

    • henry tapper says:

      John – this is not a criticism of IFAs – it is an endorsement of their need to get paid for helping their clients get paid – if that makes sense!

  2. The Bear says:

    Your quote from Rory….

    Whilst he might have said “should”, he would probably know that it’s a simple regulatory requirement that you “should”.

    So I think that means “JFDI” rather than “should” – and there’s your conflict, how does one get paid for writing “don’t do it!”

  3. henry tapper says:

    Don’t write! Now there’s an interesting endorsement for a blogger.

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