BSPS will clear the way for better financial advice.

Some of the fallout from the BSPS scandal has contaminated the more rigorous financial advisors who have suffered reputational if not financial damage. I spent much of Saturday reading a paper by Stuart Fowler- one of the most intellectually rigorous advisers – on the deficiencies of the approach adopted by the FCA (and Grant Thornton) in condemning 46% of DB transfer advice given to steelworkers as flawed.

Stuart’s arguments are compelling, you can read them here. But having read them, I wonder what they will lead to.  The immediate hope of IFAs is that it will lead to the FCA reconsidering its redress proposals , which will mean less money for steelworkers. I think the genii is out the lamp on this one, once an expectation has been given, it is almost impossible to not follow through.

As far as the Public Accounts Committee (PAC) is concerned, the issue is not whether the FCA wrongly calculated the percentage of wrongful advice , but why the FCA were behind the curve in allowing this advice to be acted on. The implication is that – given half a chance – IFAs will behave badly. It’s understandable that Stuart Fowler and others want to contradict this. But it is highly unlikely that either the FCA or the PAC will allow confidence in consumer regulation to be further undermined by accepting Stuart’s arguments.

In my opinion, for IFAs , the battle is lost. It should have been fought 4 or 5 years ago when the FCA first conducted its analysis but it wasn’t. The best that Stuart and those like them can do is to rebrand as financial analysts and put distance between themselves and the advisers to the mass-affluent whose profits are driven by wealth-under- their-management.

The majority of the costs being incurred by former BSPS members are from the advisory fees associated with the management of the pots created by the transfers. The conditional charges levied for the advice (typically 1-2% of the transfer) were great for initial cashflow but it was (and is) the ongoing annuity stream from 1% pa advisory fees which are supporting the valuations of advisory firms. The likely sale price of an IFA business for an ageing advisor hangs on the businesses projections for this ongoing income.

The FCA are well aware of this and also aware that the capacity of these businesses to replace lost profits  from increased PI costs, lower new business from future transfers and the redress payments agreed through FOS, are forcing the closure of many IFAs. They will also force down the valuations of many larger IFAs , which have become larger through consolidation, facilitated by investment from private equity.

In my view, the high quality advisers – or financial analysts – such as Stuart Fowler will not be damaged by the fall-out from BSPS but will emerge the stronger from what happens as a result of the redress scheme.

The FCA analysis is imperfect and so is the current FOS/FSCS process (which will need to be revisited for those already compensated). The public’s attention is not on IFAs but on what are seen as the IFA’s victims. Which is why the views of IFAs were ignored by PAC.

If I were an IFA right now, I would be keeping my powder dry and marshalling my resources to meet the demand for better advice and better service that will follow the implementation of redress.

Stuart Fowler


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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10 Responses to BSPS will clear the way for better financial advice.

  1. Brian G says:

    You are probably right that the FCA won’t change their approach or listen to Stuart Fowler. But I don’t understand why you appear to be saying that people should just let it slide. I know Al Rush has done so much to help the BSPS transfer people and that there were many many people who suffered from awful investment advice. But there is a difference between bad transfer advice based on bad investments and bad transfer advice because of the loss of defined benefits. And Stuart’s arguments are entirely sound, whereas those of the FCA and Grant Thornton are not. And to sweep the glaring deficiency of the FCA tool under the carpet is not helpful to the future of financial advice and does not help future consumers.

    • Eugen N says:


      We most likely have a show in Court if the Section 404 is approved by the FCA.

      The firms which are involved with BSPS and the PIMFA (which now includes the wealth management firms) are ready for this. In the end it would be a judge to decide on this.

      There are two items: (1) is there a need for Section 404; and (2) the method to put things right should only be by restitution (pension annuity or deferred pension annuity, not by compensation. No one should have their cake and eat it.

  2. No doubt there are good and bad IFAs and, as in every field, the good will pay for the bad; the reverse never happens. There are many areas of professional work where advice is paid for but there are few where, directly or indirectly, the income of the advisor is going to vary because of the advice. Where the advisor knows that the consequence of the advice will be a higher or lower income then, however unconsciously, it’s likely to colour the advice. Some will be better at avoiding that, some won’t bother.

    Regardless of the rules in force at the time, or retrospectively, is it not that struggle for objectivity which should be the primary ethical test? Professional competence, including compliance with rules, is an equally important, but different, test, and I can understand that the two may may be difficult to separate, but is it impossible?

    In either case, failings should bring consequences but if available restitution by the offenders won’t adequately redress the clients then someone must. If the industry can’t adequately self-regulate then it’s the external bodies that will control how that’s done, and who pays..

  3. Stuart Fowler says:

    I appreciate the compliments, Henry, but how are we expected as a firm to feel if our own transfer activity were assessed after the event by someone without Pension Transfer Specialist qualifications and permissions, aided only by a few hours training on the FCA’s DBAAT spreadsheet which we know is full of hindsight and design bias and whose methodology the FCA have refused to disclose?

    Your compliments provide no comfort if such a file review would (we think) fault our own cases, even though we believe they are impeccable. How do you think we should feel if the FCA forced us to appoint an independent skilled person to do the same reviews who, agreeing with us, is then told they must have done them wrong? Where on earth will this end or should it end? In court.

    But the FCA is not ironically the main issue. Compensation hits the industry as a whole when FOS rules. It’s notable that the s404 proposal passes the problem of assessors reaching inconsistent conclusions to FOS. This is arguably itself unlawful.

    How will FOS deal with the problem, recognising it has limited resources to exercise skilled judgement where inconsistency abounds? We can already see how. It doesn’t need to use the FCA’s flawed DBAAT tool. It simply tests against the critical yield on the basis the member were to buy an annuity at retirement. ALL our cases would fail this test because the same factor creating the opportunity to increase real spending in retirement, negative real gilt yields, makes an ILG-based annuity unaffordable. Instead of testing whether drawdown was likely to increase spending relative to the DB pension, FOS presumes it won’t and goes straight to a test that assumes replication of the pension. Though FOS doesn’t use DBAAT, we can note that DBAAT also has no input fields for the drawdown calculations in the adviser’s APTA report, only a text box for the assessor to make other comments if they choose. Not surprisingly FOS failure rate is 100%.

    Roll over and move on? Hell no, Henry. We’ve had enough of this incompetence.

  4. John Mather says:

    I find your argument sound and correct.

    However there is another impact
    That of the commercial risk of being an IFA. The risk/reward balance has moved substantially since 1988. SOFA taking over the LIA and the loss of a coordinated voice of IFA feedback

    Most good IFA’s could earn far more applying their skills at less risk elsewhere. There never was a “New Model” adviser, just another meaningless term to have multiple interpretations rather like Brexit

    I am reminded of that sage, Spike Milligan

    “The boy stood on the burning deck whilst all be he had fled…..”
    Twit !

    • Stuart Fowler says:

      I’m not that pessimistic, John. I see DB transfers as a special case of regulatory error even if it arose in part because of the gradual erosion of the intellectual capacity of its staff over time. I suspect it started as a presumption by senior staff, particularly in supervision, that went unchallenged by technical staff. That also implies a problem of culture.

      Ironically, the need to focus on transfer rules and guidance has forced the FCA (and should have forced IFAs too) to visualise the techniques necessary to plan and manage financial goals that have defined outcomes and therefore need a high order of quantification and modelling. That’s partly why I’m so disappointed they are getting it wrong as this is undoubtedly the right direction for financial planning, with investment serving it by delivering the outcomes within agreed constraints.

  5. Chris Clark says:

    Henry, I run PR for the British Steel Action Group of IFAs, a paid membership of 100 set up to fight the CP22/6 S404 scheme.

    We’re a little curious to note that you find Stuart Fowler’s argument of the FCA producing unreliable evidence compelling (we say the same for the same reasons), when you seem not to have acknowledged the existence of the deeply forensic work our BSAG statistician has done on CP22/6, and the legal opinion produced by our QC following about 30 FOI requests. We have previously sent you the links in the press releases to the full submission.

    I’m also curious to note why you think it’s all over for the IFAs. BSAG’s legal and PR team FS Legal and Make Public have run around 7 anti-establishment campaigns since 2013 and Arch cru, and won most. We see the challenge as significant but somewhat less difficult than Arch cru, Harlequin, Arck LLP (not to be confused with Ark & Cathy Wood), and the leasehold payment doubling scandal.

    • henry tapper says:

      Chris- you clearly didn’t read my blog as I meant it read. I find Stuart Fowler’s arguments are compelling, I also find the BSAG papers compelling . Had members of BSPS had Stuart – or any of the good IFAs who presumably gave 54% of the good advice to steelworkers, advising them, there would be no problem. . I haven’t referenced the BSAG report much much because my focus is elsewhere.

      As for the steelworkers – I’ve met a few – many are at peace with their decision and enjoying having a capital reservoir to drawdown. Al Rush tells me that many of his clients are glad they have transferred, even if there IFA let them down.

      But – and this is where I differ from Stuart and BSAG, many steelworkers were not advised properly, had no way of explaining the decision they had taken other than “my IFA says he can do better” , he said it was a “no-brainer” and so on. So I can’t accept that poor advice was good advice because it can be retrospectively proven the CETV was sufficient to meet the FCA DBAAT litmus-test.

      And I am concerned about redress for those who haven’t been compensated. Many have meagre compensation as they had no adviser when making a claim (come to Al Rush’s Pension PlayPen coffee morning tomorrow (tues) for more on that.

      With regards the other scandals you mention, I’ve no idea what has been happening in these cases. My understanding is that a lot of the advice behind the rogue investment came from abroad (not the case at BSPS). Is BSAG defending IFAs who were involved in Grand Cru and other hocus-pocus investment frauds – or just insulating honest advisers from the impact? I don’t understand why IFAs haven’t got their act together yet and formed a professional body that has some genuine clout rather than relying on the kind of nonsense I saw from you this week comparing IFAs with Post Office Postmasters.

      • Chris Clark says:

        Henry, there’s much we agree on here, other areas we may differ. We’re insulating honest advisors from the impact, and that was nicely put.

        In all of our earlier cases FS Legal and Make Public acted for the pension scheme members and investors who had been defrauded. We did indeed research the similarities between this case and Post Office (Horizon) v Postmasters, the common link is unreliable evidence when pressing cases.

        I agree with you I was surprised IFAs hadn’t done as you say until FS Legal created BSAG, so perhaps one could say we now do have a professional membership. This is the first step of all of our campaigns.

        I’ll enquire with the group about attending Pension PlayPen.

      • Stuart Fowler says:

        ‘But – and this is where I differ from Stuart and BSAG, many steelworkers were not advised properly, had no way of explaining the decision they had taken other than “my IFA says he can do better” , he said it was a “no-brainer” and so on. So I can’t accept that poor advice was good advice because it can be retrospectively proven the CETV was sufficient to meet the FCA DBAAT litmus-test.’

        There isn’t any requirement for retrospection in the DBAAT process, Henry. DBAAT is intended to test the file, which in the case of DB transfers was (at the time of Time to Choose) highly prescriptive and included, as part of the APTA comparison of outcomes, quantification that was required to use return assumptions consistent with the recommended investment approach and with the appropriate FCA rates.

        The APTA report also includes a Critical Yield which is a threshold rate required to ‘replicate’ the DB pension, not an assumption, solved for using prescribed tables and actual gilt yields. It assumes that the member would, having transferred, buy an annuity at NRA. Since this in almost all cases defeats the object of transferring, it better serves the purpose of the Transfer value Comparator introduced just after BSPS closed (so not effective at the time): serving as an indication of the high capital value of a stream of much smaller individual payments.

        In spite of this, DBAAT includes the Critical Yield as an input field when testing for suitability but does not include any fields for quantitative inputs assuming drawdown, even though these were almost certainly a fundamental part of the recommendation, with no retrospection whatsoever. A file reviewer can take them into account if they choose to, so negating an improbably high Critical Yield. But they can also just skip over that, either to cut the work load or because of personal biases. That is only one of the reasons why we can assume the ‘true’ suitability percentage is in fact much higher. As you know from my report, there are a number of examples of retrospective application of rule changes and other irrational assumptions, as well as other instances of bias designed into DBAAT. Don’t forget the original market-wide figure the FCA gave out was over 50% not suitable, even from a biased sample of suspected firms, and this got whittled down (without explanation) to 17%.

        Since redress reviews that find for the adviser will be passed to FOS (as the CP proposed), the fact that FOS applies the Critical Yield as a binary test (the largest single reason for its 100% rate finding against advisers) means it is highly likely, without legal challenge, that essentially all BSPS cases will find against the adviser. Had we advised any BSPS cases, we would be in the 100% unsuitable, not the 54% suitable you quote. Yet we are the same adviser you believe us to be. How can that be?

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