Around £12bn worth of DB pension pots could have been subjected to poor transfer advice, based on these FCA figures. This is over one year alone. pic.twitter.com/eUPWu8UoL0

— Josephine Cumbo (@JosephineCumbo) July 30, 2019

It is now too late to ask whether there is about to be another mis-selling scandal. That question was asked to two years ago on this blog when I accused Tideway of sluicing through transfers using contingent charging. Tideway complained to my bosses at First Actuarial and we agreed that rather than damage my company, I would withdraw my comments.

Throughout the summer of 2017 I persisted in raising the issue of high volumes of transfers conducted under a contingent charge price model that gave customers what they wanted now at a price paid much later. I pointed out that contingent charging provides advisers with the opportunity to take money from a tax-exempt fund and saves them charging the client (unrecoverable VAT).

When the Port Talbot factory gating happened in the autumn of 2017, it became clear that it wasn’t just FT readers who were swapping pensions for wealth management, it was steelworkers who , by and large, had no idea what they were doing.

Since then I have been working with people from Al Rush’s Chive operation, with Trustees and managers of occupational pensions schemes and with the regulators to explain that the problem is an epidemic and that it will not stop until there are interventions from the regulators.

Now – 18 months later – the intervention has come , but the damage has been done. The broken vase lies in pieces on the hall floor. The car has hit the pot-hole and is in the hedge.

The FCA says it has been acting behind the scenes to deal with advisers breaking its rules and has been taking enforcement action.

But it today has estimated the compensation bill from the current DB pension mis-selling scandal at £2bn a year.

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— Josephine Cumbo (@JosephineCumbo) July 30, 2019

The cost of compensation is based not just on the wrong that has been done at the point of transfer, but from the ongoing fees charged by advisers and wealth managers above and beyond the cost of maintaining the CETVs in simple workplace pensions.

The weakness of an evidence based regulatory approach

In its defense the FCA said it is an “evidence-based” regulator – it can’t act to change its rules until it has evidence to justify this step.

This is akin to seeing that road safety improvements may be required but needing evidence of car crashes before action can be taken

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— Josephine Cumbo (@JosephineCumbo) July 30, 2019

Well put Jo! But there is more to say about the evidence. The FCA used as evidence the information they were passed by IFAs which may have been incomplete and wasn’t timely. They are still talking of transfers in 2017 running at £20bn. TPR published figures for the year that suggested £12bn – based on the patchy returns they got from occupational DB schemes.  This month, TPR revised its estimate of transfers for 2017 from £12bn to £34bn – in line with the MQ5 ONS statistics.

The weakness of the evidence based approach is that if you rely on your own MI and your own MI relies on reporting from the people you are regulating, you’ll have to wait a long time to hear the truth.

The fact is that the evidence that I saw, occupational schemes saw, Frank Field and WPS saw and Jo Cumbo saw, was not acted on in a timely way.

“The cost of delay”, a phrase that every IFA is familiar with, is around £2bn a year, a cost that will be born accross the industry making IFAs more expensive and making the business of converting workplace pensions to a wage for life – yet more hard.

What is the evidence of contingent charging priming the pump?

We have to read to page 60 of CP 19/25 to discover the clear correlation between contingent charging and transfer value completions. There’s a simple correlation, the more the money flowing into private management, the higher the levels of completion

The FCA are clear in their minds, transfer advice is being influenced by the financial reward to advisory firms of taking the money

So when , a few pages later, the FCA complete their analysis, there is no hesitancy in their conclusions

These numbers are truly shocking and what is equally shocking is the amount that the FCA believe is being taken out of consumer’s pockets through the use of contingent charging.

Ongoing advice and product charges could on average consume £77,000 of a £350,000 pension pot over
a typical retirement period, the FCA estimates.

— Josephine Cumbo (@JosephineCumbo) July 30, 2019

which adds up to a massive £445m a year in revenues to IFAs created by the adoption of the contingent charge

FCA estimates the ban on contingent charging will cost the advice sector around £445m a year in lost revenue.

— Josephine Cumbo (@JosephineCumbo) July 30, 2019

The damage this does financial advice

Financial advisers will no doubt turn on me and accuse me of making matters worse. I don’t think I can make matters worse. The FCA’s CP19/25 simply tells the story this blog has been telling for the past 30 months.

I warned financial advisers of the damage they were doing and financial advisers (Tideway especially) tried to get me sacked from my job.  I warned how fractional scamming would destroy the wealth pots of Port Talbot steel men and Gallium threatened me and Al Rush with legal action.

The IFA trade bodies have failed to take a lead and call for the ban of contingent charging and the PLSA, PMI and most of all tPR, have stood on the sidelines wringing their hands but not getting involved.  The £60bn that has left occupational pension schemes in the past three years has – after all – been £60bn less in liabilities on the corporate sponsor’s balance sheets. IFAs are – in a very macabre sense – protecting the PPF.

In all this – who has been standing up for the consumer? Michelle Cracknell did – but since she departed TPAS, MAPS has been silent.

Frank Field has and does, but nobody seems to be listening to him

TPR is about as relevant as a dead haddock.

As for the trustees (and advisors) to occupational DB schemes, they have been quite hopeless. I will not forget being dismissed from Willis Towers Watson’s offices in June 2017 for daring to tell the BSPS trustees they had a crisis of confidence among their members that was resulting in mass desertion from BSPS. To this day I have not had a single word of response to our recommendation they establish a transfer helpline.

In short, the £2bn a year compensation bill that is coming our way is down to a collective failure to take responsibility for the heinous behaviour of  a high number of IFAs who have behaved very badly indeed.

“It’s like the Good Samaritan going out to consultation before he acts. How many more savers are going to have their savings pinched from them before the FCA lifts a finger?” @frankfieldteam

— Work & Pensions Committee (@CommonsWorkPen) July 30, 2019