Advisers could be in for a hard time today following the publication of a damming MPs’ report into pension transfer advice given to members of the British Steel Pension Scheme (BSPS).
But it would be a huge injustice if those with politial influence allowed the whole profession to be dragged down by a minority of miscreants.
The language of the report is ripe for national newspaper headlines.
‘Steel pensions targeted by “vultures”’ reads the BBC news site. The Financial Times runs with 'Steel pensioners “shamelessly exploited” say MPs.’ Meanwhile, The Times has ‘Factory gate “vultures” feast on British Steel pensions.’ The word 'vultures' is not just taken from the text of the report but also features as the headline of an entire section of the report itself, subheaded: ‘unsuitable advice’. Subtle it is not.
A section of the report reads:
'Dubious advisers exploited BSPS members for personal gain. They were supported in this cynical enterprise by unregulated and parasitical introducers, who were incentivised to induce as many steelworkers as possible to consider transfers. The advisers, using contingent pricing models, were then incentivised to push those transfers, often against the interests of the scheme members. While doing so, they shamelessly bamboozled those members into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.’
Ouch, ouch, ouch!
But, the report has done its job. Parliamentary select committees are extremely bullish. Remember the Paxman-like Andrew Tyrie taking the regulator to task over the retail distribution review? Advisers cheered as Tyrie extracted an apology from Financial Services Authority chief Hector Sants over the regulator’s lack of accountability.
The Tyrie era is over though. Re-enter Frank Field, a Labour MP of the old school who fell out with Tony Blair to become perhaps the oldest member of New Labour's awkward squad.
He became chair of the Work and Pensions Select Committee in 2015, and has since wallowed in his reputation for uncompromising public scrutiny. Field tore into Philip Green over BHS, threatening to strip the retail boss of his knighthood and most recently has demanded answers over the ‘reckless’ running of Carillion. His committee sessions can, though, seem like a trial - except instead of lawyers and judges it is the politicians who bark questions at their quarry. On more than one occasion this approach has irked serving ministers who try to maintain their dignity amid ferocious questioning.
Because of this report advisers may now feel as though they are now the ones in the dock.
But read the report closely and a more balanced view of advice emerges.
The committee claims another mis-selling scandal 'is already erupting’, and follows that with its call for a ban on contingent charging or DB transfers. But then it says this:
'Genuinely independent expert advice, on what for many people could be their biggest financial decision, has a value irrespective of whether a transfer is the outcome.’
Right! A defence of impartial advice, unencumbered by distorting incentives.
It goes on: 'BSPS members who took a DB transfer on poor advice can seek redress. Ultimately, some bills may end up being footed by reputable advice firms through a compensation levy. Financial compensation for steelworkers will not, of course, make up for the sense of betrayal many feel for how they have been treated.’
This line is not exactly a criticism of the way the Financial Services Compensation Scheme (FSCS) is funded. Good advisers righty feel sore at having to pay for the poor advice given by other firms, and we have often written about ways in which the FSCS could be made fairer. But at least there is a system, supported by a majority of good advisers, that tells the public that financial advice does not mean a wild west shoot out.
There are other sections of the report which recognise the conflict between the best and worst of the advice profession.
'Reputable local IFAs were overwhelmed by demand for advice,’ it said, adding: 'the circumstances surrounding the BSPS created perfect conditions for vultures to take advantage.’
In an oblique reference, the report discusses the ‘good Samaritans’ who joined with steelworkers in a 'determined campaign’ to assist. Of course, this refers to the group of financial advisers and paraplanners who travelled to Port Talbot to provide pro bono help. This was dubbed 'Operation Chive' by its organiser IFA Al Rush. The advisers spent days sat down with steelworkers, working through the transfer advice they had been given and offering guidance on whether remedial action needed to be taken. Sadly this received little coverage in the committee's report.
So let's not forget that the vast majority of advisers are doing a great job for their clients. As well as the strides made since the RDR, it is clear the next generation has a profound passion for doing the best job possible for clients. Only a minority of advisers have managed to create hugely negative headlines. In next week’s issue of New Model Adviser® we are showcasing examples of advice given under the pension freedoms that have had hugely positive outcomes for clients. Hopefully some of that message will make it through the maelstrom.