LEBC

The demise of LEBC has been slow and painful. It died a death of a thousand cuts and now one of the most innovative advisory firms in Britain is no more than a hole in the balance sheet of its principal backer.

I blog not bo bury LEBC but to praise it, and to ask whether the firm has become the fall guy for those who  it served.

What brought LEBC down was the weight of DB transfers it facilitated through its advice. Its business was “de-risking” occupational pension schemes, its customers were the sponsors of those schemes who wanted to reduce liabilities by buying them out on better terms than they sat on the sponsor’s balance sheet.

Such was the difference between the record on the balance sheet and the amount payable as a “cash equivalent” transfer value to the member, that many transfers were enhanced on a time limited basis (transfer now while prices last). These incentives were known as ETVs (enhanced transfer values) and were sometimes paid as cash in the pocket. This practice was labelled “sexy-cash”, Steve Webb, then pensions minister shamed the Boots pension scheme for incentivising transfers, but no employer has been stopped from doing this by the Pensions Regulator.

Whether incentivised or not, it was generally thought that many members would take the bait and swap their pension for a cash transfer into a personal pension.  Indeed the success of a “de-risking exercise” was measured in the reduction of liabilities and the enhancement of the balance sheet. LEBC were no more than the paid agents who made transfers happen.

While the contract to “de-risk” was with the trustees – who sanctioned the approach to members, the money came from the sponsoring employer and both the corporate and trustee advisers were involved in ensuring that the “exercise” was in the member’s interest. The Pension Regulator paid a blind eye, the FCA regulated LEBC and their job was to protect the PPF and the remaining members. In as much as the transfers improved the sponsor covenant (eg the  employer’s balance-sheet), the trustees were seeing more security from the sponsor and less risk to the scheme’s valuation.

There were other interested parties. Insurers looking to buy-out solvent schemes often drove these exercises. Rothesay life was particularly aggressive, it carried the brand of Goldman Sachs behind it, which lended extra legitimacy. Corporate brands such as PWC were also high-profile advisers. With blue chip advisers and sponsors and with the blessing of trustees, LEBC could feel they were on the side of the angels.

And they had a management team that inspired confidence. Its CEO , Jack McVitie who died quite recently at too young an age, had advised many senior politicians, it included current stalwarts such as Kay Ingram , Nick Flynn. and other  personal friends of mine such as Simon Leyland and Chris Brown.

LEBC – a different culture

Jack McVitie (RIP)

LEBC fostered a culture where reward was based on customer satisfaction and not sales. So employees were salaried and had relatively low levels of reward  “at risk”. They looked after their staff with good benefits and the culture was to attract and retain advisers with integrity who took the long view. While at First Actuarial , I had many meetings with LEBC and can testify to their culture being quite different from other EBCs. LEBC became the last man standing for de-risking as rivals withdrew from the market. Again I can testify to other firm’s culture – I worked for a time for a part of Alexander Forbes, LEBC were different.

And LEBC became trusted. In 2017, under the advice of Willis Towers Watson , they were appointed to provide guidance on the options BSPS members had during its “Time to Choose”, they were the trustees’ safe pair of hands. LEBC were on a very exclusive panel of advisers that the top actuarial practices used. From CEO to the adviser they were seen as the acceptable face of advice.

LEBC’s role protecting BSPS members from poor decisions was overseen by the trustees, the FCA and TPR.  Their appointment was advised by one of the world’s leading actuarial consultancies.

So what happened?

It is quite clear that none of the sponsor, trustees or advisers who appointed or paid LEBC are going to take any blame for LEBC’s shortcomings. They have distanced themselves from LEBC and indeed from the de-risking they encouraged. You do not to de-risk a scheme when it is showing a balance sheet surplus. LEBC has been abandoned.

What was deemed their KPI, their ability to facilitate the transaction of CETVs is now their undoing. The FCA found that too many of the transfers were waived through without sufficient warning and that some should not have gone ahead at all. Where there is blame there is a claim and the claims for wrongful advice have overwhelmed LEBC’s Professional Indemnity Insurance and its balance sheet. Even with private equity standing behind it, LEBC had no way to meet the bills coming its way from the Financial Ombudsman and it has called in the receivers.

What could be salvaged was salvaged through a transfer of assets to a sister company but the bulk of the liabilities have transferred to the Financial Services Compensation Fund and will be met by the industry. If you want to read the details – this post from Aspira LEBC’s  CEO Derek Miles tells you what is happening to clients.

The clients can move but the liabilities stay behind. This isn’t a good look for advisers as this post explains

The FCA have overseen the dismantling of LEBC, removing its permissions  to advise and now overseeing it in administration. The Pensions Regulator, has no part to play and like those it regulates, has politely walked away. LEBC were part of its solution but they play no part now it is a problem

Fall out for the fall guys?

The last people standing at LEBC will get nothing but the stigma of not leaving the sinking ship when they could. They are the fall guys for what went before.

But – while the finger of blame is being pointed at LEBC, those upstream in the advisory chain appear untarnished.

Perhaps .when considering  LEBC’s demise , we should think about those who encouraged and incentivised LEBC to “de-risk” their customers ‘ balance sheets.