Yesterday the Financial Times reported that the average compensation for steelworkers miss-advised to transfer out of BSPS has fallen by £30,000. This is mainly due to what the FT calls adverse market conditions – the effect of rising interest rates on the calculation of redress. But there is also worrying evidence that redress for the cost of advice is falling as steelworkers are talked into new advisory contracts which look like good news, but have a sting in the tail.
Part of the FOS redress payable by solvent advisers, is against the future cost of advice payable to support the management of the transfer payment and ongoing advice to the client. This is based on the advisory agreement at the time of the redress calculation (e.g. historic payments).
Alarming news is reaching me from my steelworker friends of attempts by advisers to scale back future fees payable to them by their clients. Normally this would be good news, but these offers coincide with the valuation of compensation from these advisers to the very people they have been taking fees from since Time To Choose
An unamed IFA has offered to cover the
My correspondent tells me that Beacon’s client is currently paying £2600 pa for advice. So why should the client suddenly find an offer from a sister company acceptable when a) it is not the service that has been charged for and b)leaves him/her out of pocket to the tune of £2100 x years to retirement (discounted)?
If this was an isolated incident of an adviser trying it on, then it might not have made this blog , but there are other reports
“This” being a software package that helps IFAs model the redress they would like to pay.
Most depressingly of all is this offer
The opportunity to get cheaper ongoing fees comes conditional on accepting reduced compensation for fees already paid.
Just how any of this squares with the new “consumer duty” is unclear. The reason that adviser fees for steelworkers are measured in thousands of pounds a year is because 1% of £350,000 is £3,500 – estimated to be the average transfer value and advice fee (respectively).
This outbreak of seeming generosity is another cynical way for advisers who have offered bad advice to wriggle out of compensation payments.
The rules are straightforward, if you misadvise and then charge for subsequent advice, your bill is based on historic billing , not on what suits you – the advisor – today.
Clearly this is open season on BSPS pensioners and they need to be clear on what is in their , and not the adviser’s, best interest.
Having put up with poor advice in the past, they should not be lent on to accept discounted compensation.
The FCA and FOS should intervene and ask advisers what their motivation for these offers is, and why these offers are timed as they are.
John – are you for or against restricting the use of IFA assets who are subject to paying redress?
I’m not sure this is correct. The compensation is determined from using current policy valuations at the time of redress. So full past charges will have been taken into account in the calculation.
But I don’t get the bit about lowering future charges. If they lower the charge the redress goes down but so does the IFA’s future income. So the IFA saves nothing by using lower charges. Yet the investor gets poorer advice. That does seem to negate the intention of the original sale completely.
Why oh why is this all happening in 2022 when we put so much effort into sorting out the mess made during the reviews of the 1990s?
The compensation is calculated with reference to the (notional) cost of restoring the former member to the scheme and the ongoing costs of managing the pension pot (charges for investment and advice). This blog deals with the ongoing charges which are being reduced to ease the cost of compensation. Accepting an offer of lower charges is not necessarily in the member’s interest.
Henry. Those of us who got stuck in the FAS had to put up with ‘reduced compensation’ ie 90% and no inflation indexing before 1997! And the government (DWP/Minister) still refuse to talk or refuse to revue ‘flawed FAS rules’! Visions of the present situation (Transport Minister) on talks about public transport not happening! With no indexing over the last 25 years we are not really getting 90% of anything!