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Free DB transfer reports put IFAs at risk of conflicts of interest

Free DB transfer reports put IFAs at risk of conflicts of interest

As demand for defined benefit (DB) advice shoots up, so too have requests for transfer value analysis (TVAS) reports.

The Pensions Regulator estimates 80,000 transfers were undertaken by DB schemes over the past year. With TVAS requests soaring too, a number of the biggest pension providers have launched their own TVAS service for advisers to meet the demand.

But the commercial motives behind the offer of these services is creating conflicts of interest, with advisers feeling under pressure to recommend transfers.

An email from a provider seen by New Model Adviser® suggests these services can come with strings attached, with a warning the free service will be withdrawn unless business is transacted.

However, other IFAs have questioned whether using a provider’s own TVAS report can offer the proper analysis required to help give independent DB transfer advice.

Business benefits 

Over the past few months a number of the biggest providers have come out with their own free-of-charge TVAS offering for advisers.

On the surface, these offers are a free tool for advisers to help them with their DB advice. But in one email from a provider, the indication is this tool can only be used if transfer business then comes to the provider.

The email New Model Adviser® has seen shows one provider refusing to give an IFA a TVAS report, as not enough pension business was being received by the provider. The provider said it would not do any of the unfinished TVAS reports for the IFA until there was a commitment to deliver more pension business for the provider.

It is not clear if this case is a one-off or part of a wider trend, but the implication is some of the providers’ TVAS services are being used as a tool to get advisers’ business into their products and will be withdrawn if IFAs are not generating business for them.

No pressure

New Model Adviser® asked LV=, Scottish Widows, Old Mutual Wealth (OMW) and Prudential about their TVAS services for advisers.

A spokeswoman from Old Mutual said the firm’s free service was offered at its own expense and was there to help advisers who wanted to use Old Mutual’s own retirement products.

‘FCA [Financial Conduct Authority] guidance issued in January 2017 states advisers must do a TVAS comparison on the specific scheme they are intending to use,’ said the spokeswoman. ‘So if an adviser recommends the OMW Collective Retirement Account as the best scheme and product for them to use, we provide a service at our expense to meet the FCA guidance,’

She said securing business for Old Mutual would not be a condition and the adviser had ‘no obligation’ with Old Mutual.

A spokesman from Prudential said the provider ‘does not stipulate’ that advisers have to generate further business with them to get its free TVAS reports. He added the free service was designed to help lower costs for consumers.

‘The benefit is advisers can give advice for customers without having to pass on a fee, thus giving customers a better outcome whether they transfer or not,’ said the spokesman.

Ronnie Taylor, director of distribution at Scottish Widows, said its TVAS service was ‘just one element of a recent, significant Scottish Widows campaign to offer advisers support around the full DB process’.

‘There is no obligation for the adviser to place the business with us in return for the TVAS report,’ he said. LV= was unable to provide a comment at the time of going to press.

Increased demand

Providers have made an effort to offer advisers their services as the DB market reaches new heights of activity. But there are other options available for advisers, with many choosing to use an independent provider, and many of these firms seeing huge swathes of new business.

Peter Bradshaw, national accounts director of TVAS provider Selectapension, has seen the number of TVAS requests coming in double over the past 12 months.

‘From April 2016 to April 2017 we have processed 47,000 cases, which contrasts with April 2015 to 2016 when it was 23,150,’ he said.

From when an adviser requests a TVAS report they have three months to submit a transfer request, and with the amount of requests soaring, this will impact the speed of the supply of TVAS reports.

Nick Rippon (pictured above), chartered financial planner at Newcastle-based Rippon Financial Management, said his firm was previously using O&M Pension Solutions, but decided to move to Selectapension over concerns about the supply times.

‘I don’t want to bash O&M as a provider because the reports they produce are great, but absolutely we have struggled [with the three-month timescale],’ he said. ‘We have never missed a deadline but we have got tight and I would go as far to say it is not O&M it is the lost time between the administrator [and the TVAS report provider].’

Rippon said because Selectapension’s service allowed the advisers to deal with the administrator, it gave the adviser more control about meeting the deadlines, which is why he moved to their service.

If some independent TVAS providers are struggling to meet the deadlines, and with the demand rising, does this mean some advisers are being forced to turn to providers’ free services?

Free lunch

A number of advisers New Model Adviser® spoke to said they would be reluctant to use a provider’s TVAS service unless they were already going to use its pension scheme. They felt there were enough independent paid-for offerings in the market to avoid using one of the providers’ free service.

One such adviser is Rippon, who said he would not use a provider’s free TVAS service because it could impact a firm’s independent status.

‘They are providing a free TVAS service in the hope you use them as a provider; that is why they are providing a free TVAS service,’ he said. ‘But if you go down that route knowingly, does it mean you are really independent; is your mindset truly independent?’

Julie Lord (pictured above), chief executive of Bridgend-based Magenta Financial Planning, said she would not use a free TVAS report from a provider because an independent report provides better analysis.

‘I don’t ever want to have anyone level an accusation at me that I went to a provider because it provided a free TVAS report, as opposed to paying £400 for a completely independent one,’ she said.

‘The danger of using a free one is the provider puts in its own charges and you can’t use them for someone else [another provider] to be accurate, which you can be with an independent analysis. It is too important a decision for any adviser not to do it properly and do it completely independently.’

If you end up using a different provider’s retirement product, with different charges, the TVAS report will not be accurate

Pete Matthew, managing director of Penzance-based Jacksons Wealth Management, said using the TVAS service of providers was not accurate enough, unless you were going to use the provider’s scheme.

‘A TVAS is a complex piece of work and for it to be meaningful it has to accurately reflect the details of the seeding scheme and the proposed receiving scheme,’ he said. ‘Anything where you are taking a bit of a liberty with it, saying it’s going to be within 10 or 20 basis points is a bit of a slapdash approach.’

Matthew said he had used LV=’s service for one TVAS report, but would not do so again unless he knew the transfer was going to go ahead into its scheme.

‘If I am never going to use it as a recipient of a scheme, why would I abuse its facility?’ he said.

Suspicious minds

In its alert in January, the FCA said using the critical yield, the rate at which a defined contribution (DC) scheme would need to match the benefits of the DB scheme, was an important factor in DB transfer advice.

However, the regulator said it was concerned some firms were using the critical yield as the sole basis for transfer advice, and this ‘does not meet our expectations’.

So while using TVAS reports is an important element of transfer advice, it is not the sole basis for one, according to the FCA. Providers will not want to miss out on the rise in DB transfer business, and IFAs should not see their free TVAS offers as a shortcut.

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