I’ve been waiting for a while for anyone to come up with a good argument as to why introducers – particularly those that intervene on DB pension transfers – should not be banned. It hasn’t happened yet.
These unregulated middle-men are not helpful intermediaries, providing lead generation to well-meaning financial advisers. They are ruthless, money-grabbing asset shifters.
But while introducers really are the people I hold most responsible for the scourge of DB pension mis-selling, and while much of the regulatory intervention on this issue has so far been focussed on financial advisers, trustees and insurers should also be under some scrutiny.
Clearly the worst part of the market when it comes to DB transfers is the genuinely fraudulent part -where someone’s money is moved out of a good, well-funded scheme and in to an investment in a Peruvian tin mine, or Costa Rican coffee plantation.
But there is a middle ground too, where someone has given up valuable benefits and been moved into quite a vanilla insurance product. Not only has the intermediary involved in this deal made a princely sum, but also the insurer is getting the benefit of, at the very least, a rather tasty annual management fee, but also some additional charges when the pension is drawn down.
So should they have done some diligence too to enjoy the spoils of mis-selling?
The starting point for answering this question has to be whether full financial advice was taken. Despite the concerns about record keeping, usually where an independent financial adviser has been sought out advice proves to be robust.
What you need to do is look at where the money is flowing. The FCA should be asking questions about those firms which have had disproportionately high numbers of DB transfers and asking why exactly these schemes have benefitted the most. It may be perfectly innocuous, it may not be.
When it comes to knowing whether a DB transfer was valid you essentially have to have been in the room when advice was given. Clearly, that is not always going to be possible. Some insurers set their own bar on this measure, by refusing to accept any insistent clients.
This one-size-fits-all approach is fine, but it does rather do a disservice to savers who know what they are doing and genuinely don’t need financial advice.
Also, trustees find themselves hamstrung when they get a member who tells them to mind their own business when they make a transfer request.
Some schemes choose to offer their members a discount on financial advice, while also pointing them in the direction of advisers they trust.
This is a good and commendable start, and again, while they can’t interfere on the final advice, at least means clients are starting out on the right footing. The FCA’s push for some kind of low cost simplified advice, with all its challenges, should help make this more affordable in the long term.
So what steps are insurers who are receiving money from incorrect DB transfers doing, and, indeed, what are they doing about ensuring that the legacy of cash they have invested from incorrect transfers is not being mis-used?
The answer is: nothing. So far, they’ve been happy to sit quietly on the annual management charges. Not our problem, guv.
What is being done about those masses of commission payments handed out to the middle-men who made many of these transfers happen? Again, nothing.
Following the money is always a good solution to finding where the root cause of a problem lies.
Everyone knew that DB transfers were booming because of the funds flooding in and the payments flowing out. Everyone could see the horror of what was unfolding for the Port Talbot steelworkers, but few in the industry moved to do anything about it.
Some robustness needs to be built into the system. It is amazing how quickly firms can play down the important of Know Your Customer rules when there is a large sum of money coming their way.
We should aim for a gold standard on DB pension transfers. One where advice is taken, but where trustees and insurers are also accountable for ensuring savers have taken the right steps.
Only then will everyone have the confidence that their savings aren’t going to end up in an unregulated Philippines pigeon farm.
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