The FCA have published two papers on transfers
A policy paper CP 18/6 “Improving the quality of pension transfer advice and
A consultation paper CP 18/7 “advising on pension transfers”.
The upshot of which is that The FCA has gone back to its historic position (one that it never left), the “starting assumption” for a transfer, is that it is unsuitable.
This reinforces the position adopted by Al Cunningham who asks each client “what makes you special?” when addressing the question “should I transfer?”.
It has gone further and in section 6 of the consultation it asks
“Do you think that contingent charging increases the likelihood of unsuitable advice?
and in case you thought the answer to that question was “no“, the FCA follow up
“If we proceeded to restrict the way in which pension transfer advice can be charged, do you have views on how this should be implemented? In particular, how could we avoid different forms of restriction being gamed?”
I have a very simple remedy for gaming – ban those who you think are taking the Michael from the privileges accorded a Pension Transfer Specialist and fine the firm.
For those not in the bubble, contingent (aka conditional) charging is the practice of only charging a fee for advice as and when a transfer has completed. It charges the fee to the transferred pot , thus avoiding the need for VAT or income tax on the fee or a cheque to be written.
Contingent charging is – to anyone outside the advisory bubble – commission. It is an agreed commission – which is how it gets round the RDR, but it is a commission.
As a reminder , here’s Wiki
The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often are calculated on the basis of a percentage of the goods sold, a way for firms to solve the principal–agent problem by attempting to realign employees’ interests with those of the firm.
In its study on Port Talbot, the FCA found that 51% of the cases it looked at led to unsuitable recommendations to transfer. As a reminder, nearly £3bn will be removed from the BSPS pension scheme, as much again from LBG and £4.2bn was transferred out via the back door from the Barclays Pension Scheme.
These schemes are now collecting from their administrators , the data on who advised on these transfers. The estimated figures from the Office of National Statistics for 2017 transfers is £34.3bn (up from £12bn), the year before. I know that at least one of the three schemes above did not submit data to ONS and I suspect that the final figure for 2017 (which we may not get till December)- will be much higher.
This explosion in transfer activity, coincided with the introduction of conditional charging. Pension Freedoms did not arrive in 2017, transfer values did not increase in 2017.
What happened in 2017, was that someone picked the lock to the stable door.
I have repeatedly called for contingent fees to be banned. If you want to read my call , read it here.
The democratisation of advice? – don’t make me laugh!
The standard defence of conditional pricing, one made on these pages by the CEO of Tideway – Peter Doherty – is that it is in the consumer’s interest.
- It is argued that it makes advice affordable as it is levied on someone’s pension account , not the bank account.
- It is argued that it reduces wastage, people pay on a “no win no fee” basis.
- It is even argued that it is charitable, as advisers give “no” recommendations free of charge.
These are arguments are spurious, bogus and bullshit (depending on your attitude to the vernacular).
One response to CP16 was picked out on twitter by Ivor Harper
PS18/6 reveals that some respondents though FCA might “add guidance on the need to consider whether an existing workplace pension is a suitable destination for a transfer”
Do any advisers really need ‘guidance’ on that point? If so, it’s no wonder there are problems out there— Ivor Harper (@ivor_park_fin) March 26, 2018
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Advisers routinely “ignore the workplace pension”, despite it offering a guided pathway at a price typically a quarter that of an advised solution using a DFM within a SIPP.
Has anyone attempted to justify the 2.5% pa price tags routinely attaching to the SJP/Tideway….solutions? Has anyone benchmarked outcomes since 2011 against an investment in say NEST or L&G’s default- the multi asset fund?
Is anyone auditing the delivery of advice to those who have opted for the “advised solutions using a DFM within a SIPP?”
Is anyone – other than me, Michelle Cracknell and Ivor Harper asking what “guidance” is needed for advisers to be treating customers fairly?
We have been here before, in 2000, prior to the introduction of stakeholder charges – which capped pension AMCs at 1%. At that point , the FSA brought in RU64, which required advisers to recommend solutions at stakeholder cost, rather than continue to sell high commission products whose initial units could carry up to a 5% pa charge.
The FCA should look at that solution, it brought about immediate and positive change to consumers.
There is nothing democratic about genocide.
PPI was not democratic because it allowed financially illiterate people to walk away with a brand new 50 inch flat screen TV. Nor is contingent charging democratic because it allows people to swap a wage for life for the hardest, nastiest problem in finance.
Stop the shelling now
It is quite clear that the game is up for conditional charging, meanwhile anything up to £5bn a month is transferring from pension to pot via CETVs. The consultation is open till May 25th , we can expect a policy statement in the Autumn (which usually means November).
The FCA can and should do better than this. It has identified a problem and the cause of the problem. You do not need a consultation to work out what 53% of £34.2bn is – it is £17bn + of ill-advised money currently in the wrong place.
If the FCA wants another £17bn to follow it, it can consult and propose. If it wants to do something to protect consumers, it should put an “RU64” style policy in place and cap the amount taken out of any advised solution at 0.75% pa (to include initial fees).
Postscript
Before I get abuse for IFA bashing, I see no better behaviours among many actuarial consultants. Mercer in Australia have been “busted” for treating customers unfairly.
“We want to protect our existing … revenue as much as possible,” Mercer, a US-owned multinational that is a big player in superannuation, wrote to senior staff.
“Accordingly we do not intend to advertise the new lower fees to existing members and we don’t want to make it easy for them to [a] find out about the new lower fees and [b] access them.”