We now have the conditions where a reduction from 5,000 pension transfer specialists to just 500 in under a year is entirely possible.

As excesses climb exponentially and the conditions worsen, many will see giving up permissions as the logical thing to do. But if you have given advice on defined benefit transfers, then cover is needed for past business.

We have already seen some major professional indemnity insurers refusing to take on new business. Should one of these insurers then decide to withdraw from the market entirely it is doubtful that cover for past advice would be easily found.

Exclusive: PI insurer Liberty pulls DB transfer cover for new business

Cover needs to be ongoing even if permissions are given up because, if cover ceases, despite the insurers charging substantial premiums while they were covering, they do not provide cover for claims on past business – even if the advice was given while they were paid up.

This is a key difference between PI cover and employers’ or public liability, where those on cover when the claim happened end up footing the bill. That’s not the case with PI and that’s a difference that is essential to understand.

For those continuing to advise, the increase in cost will impact on advice costs and the profile of the client you seek to advise.

I have said in this column before that investment and financial competence needs to be tested. Where someone seeks to self-invest, if they cannot be robustly categorised as a professional investor, then I’d be shocked if most firms didn’t give them a wide berth. I would also suggest that their track record to date needs to be checked – i.e. back testing.

Rob Reid: Tell FCA why scrapping contingent charging is problematic

In its latest consultation paper, the FCA suggests pension transfer advice costs in the region of £3,500. Perhaps it did this before the PI increases, but it is totally ridiculous.

A typical premium is around £12,000 even for a one- or two-adviser firm. Excesses could be £5,000 to £15,000 or more, with a maximum of six cases per annum. If we assume that the previous year’s premium was £3,000, then this increase of £9,000 is £1,500 per case. That makes a big dent in the £3,500.

Fees will increase and will move into five figures soon for the initial report alone. This means that those with transfer values less than £250,000 may struggle to see the value in paying the fee.

Perhaps this is the driver behind abridged advice, but even then, the PI providers are so far lukewarm to this potential development. As we watch this all unfold, the public are largely in the dark. It’s time the FCA started to keep them in the loop as to the reason fees are increasing and advice on this issue is becoming harder to find.

Walking clients through the process is essential, as we cannot wait on the FCA to inform them. We need to provide them with the work that has to be done and how their information shapes the outcome. They have to understand that there are times when their objectives are simply undeliverable. We all need to banish the illusion that you can maximise your lifestyle-driven income while leaving a substantial fund to your children. You simply can’t have it all.

Rob Reid is principal of CanScot Solutions

You can follow him on Twitter @reidmoney

The post Rob Reid: Advisers need to cover their past DB transfers appeared first on Money Marketing.

The key point in the consultation is the attack on contingent charging – many advisers have seen people reject sensible advice fees for a so-called free service which, in reality, is anything but.

There’s no doubt that given some of the comments around ongoing charging we all need to respond to this paper. That response needs to be offering a review of these proposals, pointing out logistical flaws and trying to get us to a point where the advice gap shrinks instead of growing exponentially.

FCA sets out contingent charging ban for DB transfers

If we now have to levy the same fee for those who are recommended to stay put as those who transfer, then those remaining in DB will be cross-subsidising those who are transferring out.

Current charges for DB transfers don’t just represent time spent, they reflect compliance costs and higher professional indemnity insurance costs. In other words, a risk premium. This paper makes it clear that merging the costs of a transfer with those of other items being advised on will not be allowed. Given DB transfers are now full and not focused advice, I am unclear how that will be disclosed and agreed without confusion and accidental breaches.

The legal profession used to take brickbats for the legal bills following a house purchase. A firm I worked with asked me how I would respond to such challenges so I redesigned their bill to emphasise who got what from the invoice i.e. who got the stamp duty and who got the fees. Suddenly clients began to understand who caused the lion’s share of the costs.

Firms need to be open with their clients on the cost of compliance, including FSCS and PII. We need to produce information like the Haynes manuals on cars with the cutaways and cross sections.

DB transfer values and activity increase during July

It is not just the FCA fees, FSCS and PII, it’s the time that compliance takes, e.g. from digesting this recent consultation paper to implementing product governance and even CPD. We do none of this for fun, we have to do it to remain professional and compliant.

I suspect many clients would give up their right to protection from FOS and FSCS if they knew the effect of compliance on costs – specifically, the impact regulation, and picking up the tab for the sector’s bandits, has on what we need to charge to maintain and invest in an advice business.

I believe with the holy trinity of Woodford, London Capital and Finance and the spiralling cost of giving advice we are at a tipping point – there’s no time to lose, we all need to respond.

Rob Reid is principal of CanScot Solutions

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But this decision is still not particularly straightforward. In Kelly’s case, HM Revenue & Customs was defeated at an IR35 tribunal, after she successfully appealed against a tax bill of £1.2m.

What is unfortunate – but perhaps not surprising – is that CEST has never actually been tested to make sure the decisions from the questions and underlying algorithms operate in line with any of the cases that have so far come to court.

This became apparent following a Freedom of Information request and subsequent research into the test’s level of accuracy from an organisation that supplies an online resource for contractors.

The group checked the test’s results against a sample of 24 previous court cases and found CEST got it wrong in excess of 40 per cent of the time. Interestingly, if we were to take the information from the Kelly case and drop it into CEST, the test says she was an employee.

Now, with this test telling just about everybody they are employees, it is quite clear that we are going to face some serious issues. I took the opportunity to test it myself, inputting the information I would argue is fairly accurate in respect of those people who are self-employed but who give advice through limited liability partnerships. In every case I put in, it showed that HMRC sees them as being employed.

HMRC has since suggested certain employers do not need to do the test but, for those currently working for larger distributors such as St James’s Place, it may prove even more impossible to pass.

Kelly’s case has unexpectedly gone against the Revenue, but that in no way means it is never going to succeed against anybody else.

I would imagine that it will try to bring additional legislation in to attempt to make the CEST tool valid going forward.

This is not something our industry can ignore and allow to progress, certainly not at a time when we already face substantial additional costs in respect of professional indemnity insurance and Financial Services Compensation Scheme payments.

But even if HMRC does not tighten up its rules, we cannot simply sit here and wait for it to have another go at busting someone.

Rob Reid is principal of CanScot Solutions

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If we look at the use of actives and passives globally, it is interesting to note some comparisons.

According to recent statistics from Morningstar, passive use is close to overtaking active funds in Europe, with inflows of $80bn and $93bn respectively.

In Asia, passives already hold the lead, attracting in excess of $100bn, although actives still take a strong $72bn. In the US, however, actives are seeing outflows of $80bn, with passives attracting $459bn. I spend a lot of my time now in Canada and the amounts going to passives there are still a fraction of what goes to actives: $7bn compared with $23bn.

One key reason for all this deviation is disclosure. With such a continual focus on costs, people are ignoring the fact they are only part of the equation.

When active funds are outperforming passive equivalents, why shouldn’t you pay a bit more? That said, we cannot ignore those DFMs that underperform.

We urgently need a more effective way of disclosing costs. Solutions should be simple and, with lateral thinking, there is no reason they cannot be extended into fund charging. It is through better performance reporting that I believe we will actually get to a solution. This can also address exit charges.

Talking about percentages or basis points is not helpful. It is not treating customers fairly, as the bulk of people have no idea what we are talking about.

Simplicity is everything and transparency is all. What you do for clients is what they will use as a benchmark.

I recently had a client move on and could not help having a quick look at where they had gone. Our charges were 1.25 per cent, which included all costs. When I looked at where they had been encouraged to go by an older relative, not only was the performance not there, but the charges were far higher, running at 3 per cent to 3.5 per cent per annum. An awkward conversation will no doubt follow.

And take when Standard Life recently announced it had cut the Elevate charges. To my mind, it was a bit like a sale in BHS, where prices had been put up a few weeks before, then reduced.

Perhaps that is treating customers fairly in their eyes, but I do not think it is in anybody else’s.

If we can find ways of servicing people at a lower cost, this will put pressure on both the fund managers and the platforms, because providers who ignore this do so at their own peril.

Rob Reid is principal of CanScot Solutions

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It’s important that those appointed to act under a power of attorney are fully briefed on their role and responsibilities. But what of their competence in financial matters? Has that even been considered?

Some time ago I was involved in training staff at the Office of the Public Guardian and in discussions it became clear that their ideal position would be to see all attorneys file annual accounts. However, that would put many off from accepting the role and would have zero effect on those who would ignore the requirement – and who are financially inept themselves.

The need for basic financial competence extends beyond those who are or are about to become attorneys and prompts me to think of the European Computer Driving Licence where people could evidence their competence in using PCs. We really need a similar certification for attorneys and self-investors as a minimum. If we can encourage all ages to be more financially competent then those who have reached the minimum standard of competence should be safer for us to engage with.

Rachael Griffin: Understanding power of attorney legislation

The question is how do we encourage as many people as possible to validate their knowledge or to acquire basic financial knowledge to their advantage?

Returning to those who need help in later years, or vulnerable clients, we need to be able to determine, as part of a prescribed process, who is capable of giving instructions. We should also be determining how financially savvy they are.

Before anyone suggests that people rail against any form of testing, that’s simply not true. Look at all of those holidaymakers who take instruction and are tested so that they can scuba dive.

If it is possible to put up the barrier of competence before they dive, surely we can do the same with financial knowledge ­– albeit at a basic level?  One of the barriers to people taking and paying for advice is the majority not understanding the benefits it can deliver.

Robert Reid: Ambulance chasers hunt their next prey

Previous attempts at financial education have not captured the imagination of the very people that need it most, so the format of this needs to reflect the likelihood that those taking it will not spend long on one module.

For me the starting point is to make tested competence mandatory for those acting or potentially acting as attorneys.

It’s time this was acknowledged and acted upon before we witness a flood of vulnerable people left in dire straits, despite the supposed safeguards which are, in reality, more like a colander than a helmet. Giving people a sense of false security is never smart.

Case study: Gifting rules under lasting power of attorney

Next time you meet a client with a power of attorney, or who is actively considering one, ask them about their financial competence. I suspect few will have even thought about their suitability from that perspective.

After all, delegation of any nature should be to someone who is equally competent, otherwise it is pointless.

Robert Reid is partner at CanScot Solutions

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Unfortunately, a delay in the firm making that decision resulted in the cash equivalent transfer value timing out, meaning there was no time left for the subsequent adviser who did agree to provide advice.

The first advice firm should have declined without delay, that is for sure, but even if they had, I doubt there was enough time left anyway, especially if the information from the defined benefit scheme was insufficient. A 90-day turnaround is all very well if the CETV is emailed to the member on the date calculated and the member then forwards it to a chosen adviser straight away. But we all know that is not often the case.

Rob Reid: FCA cannot ignore its ‘too-difficult’ pile anymore

For starters, the CETV is 10 to 15 days old by the time the member receives it by post. They then may take up to 30 days to select an adviser, leaving us 50 per cent of the 90 days left for further information gathering and clarification delays. We may have as little as 10 days left to draft a report.

Ideally, people should find an adviser, then apply for the CETV, but that is not the norm.

In the case outlined here, the person’s CETV dropped. But what would have happened if the firm had gone ahead, only then to discover the CETV had gone higher? Would that have been a valid complaint?

A CETV is a snapshot in time; it is based on current assumptions. It is no different from getting a fund value on a defined contribution scheme. If we are to see more cases like this, then it is essential advisers clearly state something like the following on all DB transfer cases: “We have no way of predicting whether we can complete this case in 90 days. Therefore, you must be prepared to ask and pay for a new transfer value, which may or may not be more or less than the one you have at present.”

We find ourselves in a complaint culture, partly fuelled by the FOS’s ability to ignore common law.

There is no doubt that firms need to be careful how they advise in this area, and that extends to all aspects of DB activity, whether that be triage, the advice itself or declining to advise (as long as we do that without delay).

Nic Cicutti: Adviser anger at FOS is misplaced

Professional indemnity insurance costs continue to rise too. This reminds me of a statement made by ex-US president George W Bush to people complaining about the cost of medical treatment in the country.

Doctors were paying 50 per cent of their entire turnover in negligence cover and Bush suggested that, if patients held back from suing them for the slightest thing, the cost of treatment would fall.

The same could be said about the costs from the FOS and Financial Services Compensation Scheme regarding the price of advice.

Rob Reid is principal of CanScot Solutions

The post Rob Reid: Cover your backs on DB transfer advice delays appeared first on Money Marketing.

As more and more opaque and complicated products seem to appear, there is an even greater need for the FCA to determine what should be marketed to the public and what should not. This, of course, leads on to the debate as to what a professional investor is, which, depending on whose website you look at, is greatly variable.

The regulator was recently asked whether it would consider a ban on unregulated or non-standard investments from Sipps. It responded by stating that effective due diligence checks by Sipp operators were a more proportionate way of protecting consumers than an outright ban. This is a response devoid of merit at any level. Pushing the problem on to someone else does not always solve it. But, then again, this is something the FCA has a track record with.

Claire Phillips: Outdated FCA risk guidance misses vital behavioural element

So there needs to be greater lateral thought in what is regulated and what is not. With several employee benefit consultants getting ready to promote collective defined contribution schemes in a way that could see them billed as “DB lite”, the need to provide advice – collective or otherwise – to members and the regulation of those firms become even more appropriate.

This could be in the form of better and stronger disclosure rules for occupational schemes which, to be fair, the Department for Work and Pensions is beginning a process of consultation for. At the same time, we need both the FCA and The Pensions Regulator working in tandem to develop a strategy as to how the marketing of these CDC schemes is going to be policed.

At the moment, employee benefit consultants are largely unregulated. Some may state they are regulated via an approved professional body status through the Institute and Faculty of Actuaries, but this is not the same as the regulation being applied in retail financial advice – either in terms of strength, supervisory depth or enforcement. Nor do the firms under APF status pay anything towards the Financial Services Compensation Scheme.

John Lawson: DC or CDC? That is the question

We need to ensure the regulation delivers for the consumer. After all, that is a key requirement of its function. It is not good enough to suggest things are too difficult.

If things are too difficult to regulate, I would argue they are too difficult for people to understand – ergo, they should not be marketed.

So whether it is complex investments or CDC schemes, the public deserves something that is fair, clear and not misleading. Passing the buck is not a viable long-term option for regulators.

Rob Reid is principal of CanScot Solutions

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As the claims deadline for PPI draws closer, it is clear the ambulance chasers will be looking elsewhere to continue the level of income they have enjoyed for the past few years.

I can see claims management firms turning to all forms of investment and pensions advice; defined benefit transfers, in particular.

There is no doubt we will see claims in this area increase. Sometimes this will be because clients genuinely did not understand what was going on but, in a significant number of cases, they will have been convinced by the chasers that there is an opportunity to gain a financial advantage.

Advisers targeted by ambulance chasers over DB transfers

If the latter is the sole motivation for a claim, then individuals should feel the weight of the law for being mendacious in any way. We have already seen this in travel insurance.

Saying this is in no way to suggest the ability for people to make claims should be removed. Far from it. But those that are seeking to profit from claims without any proper analysis as to whether someone was at fault should not be encouraged in any way, shape or form.

Other claims around pensions advice will likely centre on options and charges; with investments, we could see many more with regards to closet trackers.

And with more individuals becoming internationally mobile, there is also a risk that getting it wrong on domicile, or more importantly, residence could result in a claim further down the line on incompetent cross border advice. This takes us into the world of Qrops, which is not for the fainthearted, particularly since the changes brought about by pension freedoms.

All of this underlines the importance of the Treasury ensuring that the current disconnect between the Financial Ombudsman Service and the FCA does not continue.

Henry Tapper: ‘We’ve really made a mess of DB transfers’

An adviser recently told me of a seminar he had attended where the FCA representative had to leave before one from the FOS was due to speak. As the FCA rep left the room, the FOS individual said: “Well, you can forget everything he said because that is not the way we think”.

It is exactly that kind of attitude that is unhelpful to advisers and clients alike.

I have never really understood why the FOS and the FCA are two separate organisations, and the lack of cohesion between the two remains a major concern.

The Treasury needs to get a grip of this regulatory infighting as soon as possible or the advice gap will grow even further thanks to an unfair regulatory environment.

We need a fair process to allow people to claim where they are greatly disadvantaged.

Robert Reid is partner at CanScot Solutions LLP

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Having served as chairman of the Society of Financial Advisers and later as Personal Finance Society president, followed by various other posts in the Chartered Insurance Institute, I have attended many functions over the years.

The temptation to take my quota of the free wine has been countered by my wish to remain professional at all times; it would be unhelpful at best to be ‘worse-for-wear’ when representing our professional body. In fact, it would be diametrically opposed to raising tested levels of competence, which I always saw as the gateway to us becoming the profession that many have strived to create.

Recent comments on social media could jeopardise that quest, especially those posted on a story about FCA executive director of supervision for wholesale and specialist investment Megan Butler being patronised by a senior banker. The story highlighted that in some ways we have moved on a lot in diversity and inclusion, but in others we just haven’t progressed at all.

When recruiting people, you look for the best person for the job. Their gender, sexual orientation, religion and ethnicity are irrelevant. What I want is someone who is ethical, puts the effort in and has a real talent that can make a difference. That should be the core of all recruitment policy. All too often it is not.

Profile: PFS boss Keith Richards on the need for advisers to unite

Several comments that followed said article were inappropriate – reflecting badly on the individuals that made them and on the profession as a whole. One comment triggered a mini Twitter war as various people responded to its poster. If this had been someone new to our sector, then perhaps they would have been oblivious to our quest to be fully recognised as professionals. But they were not, nor were they inexperienced as a press commentator or in dealings with the media.

We all have to be prepared to call others, and ourselves, to account

If this were the only individual guilty of this type of comment and response, I’d regard it as an unfortunate episode – but it’s not. We all have to recognise that certain remarks are unacceptable on a public forum, on the assumption that we seek to be seen as a profession by the public as a whole.

That means we have all got to step up to the plate – that includes publications, trade bodies, professional bodies, individuals, firms and providers. We all have a part to play in this and if we don’t, there will be a dilution in public confidence.

Paul Armson: The true value of advice as a profession

When I took on the role of diversity and inclusion champion for the London Insurance Institute, I never realised just how challenging it would be. It has given me a whole new perspective and has changed my approach to new and old tasks alike. I feel I have evolved as an individual and I feel our Institute has made a significant contribution to other people doing the same.

To have stayed silent at this point would have been to imply that I had no issue with the statements made on social media. For me, that is not an option – we all have to be prepared to call others, and sometimes ourselves, to account.

Robert Reid is partner at CanScot

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A car showroom salesperson would never show you the basic model first, even if it was completely suitable for your purposes. We all end up paying for functionality we will never use. Which takes me to the pensions dashboard.

It all started so well. But then we saw the Association of British Insurers try to cut the adviser out, which ended up with it cutting itself out too. That is the problem when you operate alternative agendas.

Why we seem to be hell bent on a fully comprehensive system from day one is lost on me and many others, my fellow Money Marketing columnists Nic Cicutti and Ian McKenna included.

The purpose of the dashboard should be to engage people as early as possible in making adequate pension provision. By definition, that means targeting the under 45s, few of whom will have legacy defined benefit schemes.

Ian McKenna: Four ways to make pensions dashboards better

If we proceed on the current path of trying to provide a solution for all ages, the litany of different arrangements that people over the age of 45 have will be a major barrier when attempting to produce an easily understandable statement of their total position.

Back in the late 1990s, there was a project that hoped to produce a combined statement of someone’s personal and state pension arrangements. This got derailed when the Department for Work and Pensions were told that some people had more than one pension – something that had not been allowed for in the design.

Had it gone ahead, every insurer would have had to publish combined statements with the state pension replicated on each, meaning someone who had three pensions could be forgiven for thinking they had three times the amount of state pensions. So the project was canned.

With today’s project, we are trying to do far too much for the wrong people. It cannot be that difficult to bring in some basic legislation that forces all master trusts to feed the information through to a dashboard.If you can force the information through from the insurers and the DWP, then we have a dashboard that is workable and aimed at the very people most likely to look at it.

ABI: We are not cutting advisers out of pension dashboards

As it stands, for many of the people the dashboard is trying to help, it is already too late to have a significant impact. It needs to be taken by the scruff of the neck, otherwise it is going to fail miserably. If we are going to communicate, we have to communicate in a way that works.

Sadly, the project has been derailed by those who see advisers as a threat rather than an ally.

The view that it will be easy to obtain useable data from multiple sources is overly optimistic. The country needs a dashboard but it needs to be aimed at the right people, and, at the moment, I am not sure it is.

Robert Reid is partner at CanScot

The post Robert Reid: The pension dashboard is helping the wrong people appeared first on Money Marketing.

As the need for savings in fixed costs becomes paramount across all firms, intermediaries should be focused on how they can take cost out of the process by automating as many tasks as possible.

A current issue comes from the many companies out there unable to deliver data electronically because of old legacy systems. Such a block to lower cost straight through processing is entirely unhelpful when one of the key elements of an adviser’s proposition should be ongoing service to their clients.

There are other tasks all intermediaries have to undertake to keep their business current and compliant, and keeping costs under control in these areas are important too.

One significant task is the recording of continuing professional development. In the past, most CPD was recorded on paper and had to be copied if your records were subject to an audit. If you were a member of several bodies that all sought proof of CPD, then that meant multiple copies.

When online recording finally arrived, many advisers picked one system, with the arrival of the statement of professional standing often making each firm’s relevant issuer the sensible system to adopt.

Ideally, it should be possible to import those records and their attachments into another professional body’s system. However, I can confirm that is not so at present. The Chartered Institute for Securities and Investments, in particular, demands members use its system – not paper – for records, yet it does not enable adequate importing facilities.

The next difficulty comes in the form of the CPD reporting period. For the regulated firm, it is usually done per the calendar year but with the professional bodies it is the renewal date for membership.

This means it is possible to have a complete record from the point of view of the regulated firm but an incomplete one in respect of the professional bodies, depending on when major CPD events fall date wise.

When it comes to firms taking control of their costs, does membership of several professional bodies make sense? Firms have to ask themselves what each provides in terms of development and recognition – from the public, not the profession.

Where membership is a cost and nothing more, I can see this evolving into a major issue for some bodies.

So the selection of a professional body is just as important as the selection of a provider for a client’s investment.

What we really need is an independent portal that not only allows the recording of CPD but also acts as an effective development tool. That portal could then enable a dashboard to provide a snapshot of compliance as to the level of CPD completed for several bodies in distinct timeframes.

Or the bodies could work together to provide a similar solution. We do not mind which option proceeds but we cannot support the status quo. Being dogmatic is never smart.

Robert Reid is partner at CanScot Solutions LLP

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