Last month the Financial Conduct Authority (FCA) visited Swansea to host a training seminar on defined benefit (DB) transfer advice.
The exercise was an attempt at some front-footed regulation, reaching out to IFAs and setting out their expectations for transfers in the local area. But is the regulator guilty of once again doing too little, too late?
The reasons for this training session are not hard to find. The past few weeks have borne witness to the British Steel Pension Scheme (BSPS), many members of which are based in the South Wales area, reaching tipping point.
Tens of thousands of members have until 11 December to decide if they want to go into the Pension Protection Fund (PPF), the new BSPS scheme or take a transfer. This has set the perfect scene for advisers to target them.
New Model Adviser® revealed earlier this month that national advice firm True Potential was handing out leaflets to BSPS members advertising its DB transfer service. Rumours suggest it is by no means the only firm reaching out to members in this way.
Much more worrying is talk of unregulated introducers operating in the South Wales area and passing BSPS members to a small number of advice firms with suspicious records.
New Model Adviser® has seen the email sent by the FCA to IFAs in the region. It raised ‘serious concerns’ about DB transfer advice it had seen.
‘We are aware that firms offering a commoditised approach to pension transfer advice are more likely to give unsuitable advice or fail to recommend a suitable destination,’ the FCA’s email said.
Best foot forward
With MPs on the Work and Pensions Select Committee challenging the regulator about its plans regarding the ‘feeding frenzy’ around the BSPS, the FCA was under a lot of pressure to act.
Ex-FCA technical specialist and independent compliance consultant Rory Percival commented on our story, saying the seminars were a positive move by the regulator.
‘It is good to see the FCA being proactive in this area,’ he said. ‘This action is interesting as it is proactive but also very targeted towards a specific concern in the wider DB transfer market. Let’s hope we see more of this swift, targeted supervisory action.’
Approach with caution
Vince Smith-Hughes, director of specialist business support at Prudential, agrees it was the right thing for the regulator to be active in this area.
‘It’s good to see the FCA is being proactive in targeting the areas where much of the transfer activity from the BSPS is taking place,’ he said. ‘I am sure advisers will welcome this additional guidance, and have the opportunity to discuss some of the real issues affecting these members directly with them.’
Smith-Hughes said advisers working with these members needed to be very careful. Many of the members may already have it in mind to transfer out.
‘Advisers should remember the principles of what should be covered in the suitability process. If a recommendation is appropriate, this should include a thorough analysis of the member’s personal circumstances and objectives, and how transferring the benefits will meet the client’s objectives. But also, crucially, the disadvantages of transferring should be made crystal clear to the client. Advisers need to tread very carefully when the benefits are essential to meeting or helping to meet the client’s core income needs in retirement.’
The horse has bolted
By holding the Swansea seminar, and also one in Doncaster this week, the FCA has taken action. But advisers have been targeting this scheme for months. Is it all too late?
Alistair Cunningham, director at Caterham-based Wingate Financial Planning, said it was ‘positive’ the FCA was trying to prevent harm to BSPS members amid the worrying rumours. But he added it was ‘damage limitation’.
‘Hopefully, its actions will mitigate the harm that will be caused to people in that scheme and in that area,’ he said.
‘My concern is there is a massive spectrum of negative outcomes: anything from outright fraud to inappropriate assets and then people transferring out for emotional reasons rather than scientific ones.’
Al Rush, director of advice firm Echelon Wealthcare, recently visited the Port Talbot site where he found many examples of poor advice. These featured in a blog by pension expert Henry Tapper.
Rush does not think the FCA’s response is going to fix this urgent issue.
‘Is it a waste of time to remind people of their obligations? If you are [advising on transfers] properly, it is a waste of time. If you do it badly, it makes no difference. It will be the 1% or 2% wavering in the middle who might be scared into doing it properly. But it is not a clamour that is needed: it is a scalpel,’ he said.
This issue of whether advisers will actually change their practices because of these FCA seminars is a big one.
The email sent to advisers encouraged IFAs carrying out DB transfers in the area to attend. However, it did not force them to do so. If advisers decided not to attend, they simply had to email the FCA telling them this.
This was a point raised by Gareth Jones, operations director at Swansea-based Portfolio Financial Consultancy, who attended the session in Swansea.
‘The FCA must realise the people attending these sessions are the good guys: we are not the ones they should be worrying about. There are firms travelling down specifically to target steelworkers,’ Jones said.
However, the FCA did encourage firms to blow the whistle on those who were carrying out bad practices. Jones felt the seminar was more of a way for the FCA to gather intelligence about what was going on in the area.
This is perhaps a more useful side to the FCA seminar, as it will help to find the bad advisers who are operating in the area or travelling down to do so.
Better late than never?
With only two weeks left until the BSPS deadline, is now the right time for the FCA to be ‘gathering intelligence’? Why has it not used data gathering tools to find the firms it had concerns about months ago, before this scheme blew up?
It seems clear the FCA is once again guilty of acting too late. While there now seems to be a good targeted approach, it is one the regulator should have enacted months ago.
If firms have been using unscrupulous models to target steelworkers, why has the FCA only woken up to this issue now?
As Karl Marx once said, history repeats itself, ‘first as tragedy, then as farce’.