FSA fines Gateshead IFA for pension switching failures

With all the issues around pensions one would think that as this is a high isssue within the FSA that if they are not doing the job properly then they deserve what they get.

Are these advisers still authorised??

I have been issued with a letter of intent to refuse authorisation following the KPMG Business Review at Park Row. I have been unable to advise clients or earn a living for nearly 8 months now. This has cost me far more than £21,000 ... and all of this because KPMG have conducted a slap-dash review of business they do not understand and the FSA has taken the results at face value.

Look out Positive Solutions & other Networks/Nationals as this is only the thin end of the wedge.

I really do not see what the problem is with professionally advised pension switches.

Despite what's said by Margaret Cole, I do not see this as a complex area. And I am apparently a "pension transfer expert". Is she?

What I have seen is clients (not mine!) simply being effectively churned onto wrapper platforms regardless, by largely underqualified advisers. And that appears to be the problem, particularly with paid up pensions.

The FSA's view appears to be that the average investor only uses a handful of funds (generally the more "tried and tested") so why offer 100's or even 1,000's of funds at a presumably (unnecessarily) higher cost.

Hence the nonsense about having to consider (and only discount after serious, reasoned analysis) a stakeholder as an appropriate option.

The other aspect of this is that historic past performances are never a guarantee of future performances - although I don't know of anyone who actually believes that external fund managers (e.g. Invesco-Perpetual, Fidelity, Jupiter etc via "wrappers") are inferior to in-house fund managers - apart from maybe the regulators, who's attempts to be neutral are more like being neutered!

But the bottom line here is churning for churning's sake and not for the client's benefit. It is still going on.

There are still crooks out there. Yes, crooks. What else would you call someone who is just after the fast buck?

Not just misinformed advisers who don't realise that they are doing anything wrong (and there are a few of them), but crooks.

And until the Charter is the LOWEST acceptable qualification, the crooks will easily survive, even with RDR.

Unfortunately it will be the fools who listened to the FSA's guidance surrounding pension switching which are most likely to fall foul of their audits.

Their audit team's requirements bear no resemblance whatsover to the guidance the FSA gave surrounding pension transfers, which is still probably on their site, I know it was earlier this year.

In addition the audit team appear to be well behind the times, ahead of the invention of the wheel but have throwbacks to the 70s 80s and 90s, so far behind management of funds, portfolio uses and current investment advising that they may as well not have been in the industry at all.

They continue to this day to insist on comparing a random selection of funds, may as well be written on a dice, which a client may currently hold and have shown NO reasonable performance in their entire life as potentially growing relevant to their asset make up against the asset make up of portfolios which costs 10s of thousands of pounds to construct and deploy numerous systems and firms to construct, words cant describe the stupidity of this as an idea . The existing fund selection if diversified was probably most or all the funds that were available at the time, their equity content was not thought out it just happened, so if they have 30% equity or 90% equity it doesnt matter, it was an accident and still doesnt alter the fact they had no performance to date.

If no construction of replacement funds on the old plan can be backed up with a system available to that IFA firm then fund switching is difficult. IFAs cannot afford access to every potential portfolio system.

I can imagine the FSA as a rescue service turning up at tree where a child is clinging to a branch half way down a tree and turning to the parent, just because your child has fallen half way down the tree doesnt mean to say...

The parent doesnt care they want their child down. The pension owner has lost faith in their product and the fund range they want to try something completely different and if that includes less cost or a more structured approach then that is what they will want to try.

Advisers are spending so much time in the wrong areas of this report that other areas simply have to be weaker IF they are transferring average fund sizes which will be £30k and less, there just is not the income to spend the time that the audit team think is possible.

This doesnt mean to say that this is the situation in this one case, but certainly it is nationwide. It is a shame that self employed IFAs were not hired even for one week per month to be part of these audit teams so they at least had some people who were living in this decade, even this year.

Even with the best product and best fund choices there are no guarantees that anyone with a pension or anything else will end up where they want to be, they live in the time they live, various asset classes will behave how they behave during one's life and annuity rates will be what they will be at vesting. This idea that the FSA is giving that a little adviser somewhere moving a client to a cheaper product or a professional fund range with higher cost will know what will happen in the future must stop it is ridiculous.

If you like we give them a good map and a good compass in place of their old one but only constant reviews and effort and commitment on their part will get them to where they want to be. The FSA implies with their actions that an adviser knew the succesful route but sold something else for profit instead.

It is almost as if the FSA want IFAs to fall down with transfers and stuff the consumer even if it is better for them.

If the advisers in question have churned for profit, then they deserve it! If not then what we need is the FSA to provide a robust and clear process which we all have to follow. If it is mandatory, then it is simple, do it or you have broken the rules and expect the consequences. The current system of guidance is too open to interpretation and this is where the mistakes are made.

Done for the right reasons pension transfers can be beneficial to clients and advisers. The Stakeholder issue does create extra work for us as usually we recommend a lower cost product with greater fund choice, including external funds and then have to justify why. But that's not difficult!

With regards to Dave's comment about crooks, does being 'chartered' guarantee the holder isn't a crook? I don't think so! Those that are going to be dishonest are usually those who are devious enough to not get caught!

All the rest of us can do is look after our clients to the best of our abilities.

Well said anon 2, this is a good source of business if you do the right thing by the client, they will stay with you until retirement and you get a second bite of the cherry, happy times.

To reply to Charles' concerns about my "crooks" comment, firstly thanks for reading it.

But my intention is simply to say that there are people deliberately churning to "wrappers" i.e. immediately moving as much as possible without a full and proper analysis. That in itself is not difficult, just by reference (rightly or wrongly) to past performances alone.

And I am quite sure that this is what the FSA are up in arms about - as opposed to a professionally analysed and annotated switch for the right reasons by following the right procedure.

However in my opinion, those who are just after a fast buck will not be able to "go the distance" with higher qualifications.

And you are right Charles. Just the possession of the Charter is not a guarantee that an adviser is not a crook.

But my opinion (and it is only my opinion) is that those with no real interest in doing the job properly and professionally will find it much easier to rip off elsewhere and will probably leave the industry to do so. Whatever the latest easy sale with high commission is - that's where they'll go.

This puts a real onus on the in-house compliance function for an IFA, as well as the training function to prove conclusively that everyone knows how to switch professionally and compliantly.

And we should note that pension switching is really nothing to do with pension transfers, which are now far better documented via decent TRANSVAS analyses.

And before pension transfers were so well organised and monitored, we all know of advisers that deliberately went out to transfer people out of final salary schemes, transferred out loads and then left before the proverbial hit the fan (and after the commission was paid!).

This isn't going to go away until each and every firm sets up an acceptable and professional system for pension switches and follows it - and makes sure everyone working there follows it.

Cue CII to provide a stand alone "Pension Switching Exam"? Or maybe I'm just a cynic?

The professionals in the industry should be proud of what we do. But we all have a responsibility to "whistle blow" where necessary.

And Charles, thanks again for reading my earlier screed, but there are crooks everywhere. Look at the government expense claims!

We know that the ABI have lobbied FSA over the amount of money dropping off their books. This is what FSA are doing: protecting life company books.

Re Dave Greenhill. Sorry I think you couldnt be further from the truth.

You are spot on that education could solve the problem, however I would say this should be practical education with the FSA and auditors and head office staff not advisers.

With pension transfers the auditors have their boundaries which flag up transfers they are not happy with, it is fact not education which triggers these warnings. Critical yields and asset mixes in the main.

Someone above hit the nail on the head about more educated advisers being more devious, already all the FSA has done is start off a pension transfer trend, ask any provider/platform/wrap and they will tell you if somehow you have missed this massive shift, ie they have virtually created a one solution fits all situation, exactly the same type of situation you describe where due to exceptional performance in the stock markets it was genuinely accepted that invested pensions could outperform final salary schemes so one solution was applied to all, the same way regualtion is applying one solution for all in that cheap is best except there is no data at all anywhere to support this.

All that pushing qualifications does with a high average age IFA industry is provide discounted businesses for those on aquisition trails to purchase and there is much of that going on by businesses who intend to sell post RDR and retire, hardly the foundation of a good financial services future. The FSA should recognise when it is being used, by banks, large or high profile IFA firms.

To anonymous 2:

Thanks for your comment, and I take your point about practical education with the FSA.

Many years ago I was at a meeting with PIA representatives, along with several LIA committee members. The PIA attendees could not answer our questions regarding the structure of certain quotations, as they did not know that our query subject existed!

Re Dave thank you, seems like regulation has not adopted change as easily as they preach!

It seems they do not understand the difference between a complete unit designed for purpose and a bag of component parts, just because the bits and pieces all appear to be there doesnt mean they work in unison. A bit like my cooking, all the right ingredients doesnt guarantee a cake so component parts without structure or proven systems mean nothing, cheap or expensive.

Anyone segregating clients or similar is also in a tricky position, they give choices due to TCF, TCF is due to regulation, so the client chooses one of the options or in rare occasions asks for a tailor made solution, this then combines with some business being transacted, ie a pension transfer, so you combine their wishes, did you lead the client for your own benefit?

Did you lead the client at all?

Well you did benefit. So you are in the spotlight already.

You did lead the client due to TCF, be even handed with all, if you hadnt done TCF then you wouldnt have been so likely to lead the client.

But is that you leading the client or regulation leading the client?

Finally there is this daft idea of transparency except when you are doing pension transfers, instead of seperating costs you match a failed pension with no review system built in, to a new one with a review system built in, the only reason they took a review system was 1, the first pension failed and was not picked up due to not being reviewed for a long time (almost every failed pension- usually starts with 'Iam not so happy with this' or 'I am unsure about this' -' please look at this for me') and 2 because you have to fit the client in to your TCF system so everyone is treated the same.

It is a total mess and none of it relates back to the average fund size and time which these size funds can support.

All data that the regulator already has as pensions is a hot topic.

oops already holds

Some interesting points from anon2 again. And yes, I agree that it is a total mess.

But as far as leading clients (or not), bear in mind that an adviser could be seen to be in breach if they do not spot an advice area that needs to be addressed - even if they are not authorised to deal with it!

So a non pension transfer specialist would be expected to include reference to a preserved pension in a suitability report - even if that reference simply states that the client needs to obtain advice from a specialist in that area.

I am a great believer in a complete check list for all areas of financial planning and using these as a starter for a suitability report. There is therefore no doubt about what was or was not discussed.

For example: "You have a preserved pension from a previous employed. I recommended that we prepare a professional pension transfer report in order to be able to give you advice on this, because no advice can be given without that information. You declined that advice".

Having said that, it is sad that we have to continually devise ways of avoiding the ambulance chasers!

Of course over the years, pension transfer specialists have received plenty of introductions from those not qualified. In many cases the non authorised became introducers and were suitably (and sometimes substatially) rewarded.

The LIA was a great medium for advisers to meet and "compare notes". This was helped by the great industry speakers who gave of their time freely. Sadly, the PFS seems to have lost some of that camradrie.