Advisors across the UK recently received a reminder from the FCA on the issue of ‘commoditised’ defined benefit pension transfers that run the resultant risk of unsuitable advice.

Penned by Megan Butler, the FCA’s executive director of supervision, the letter was sent to all advisors accredited with pension transfer permissions as a reminder of one of the FCA’s “key areas” of focus being pension transfer specialists. The letter further revealed the regulatory board will contact all concerning firms later this year to collate data across the industry whereby any pension transfer advice offered by any advisor or planner is likely to be up for review, too.

Montfort absolutely commends the FCA for issuing this letter. A review of how firms operate in this area should always be and must continue to be a top-priority requirement, especially in light of advisor processes concerning recent high-profile cases such as the British Steel Pension Scheme”, comments Montfort’s managing director Geraint Davies.

As an incredibly complex and intricate area of pensions advice, defined benefit pension transfers must be undertaken by any advisor with unconditional consideration and financial expertise.

“With more and more such transfers taking place in line with pension freedoms, the advisory community must ensure their own capability to sufficiently deliver for their clients”, comments Montfort’s pensions consultant Jonathon Webb.

“Further complexities prevail for any defined benefit pension scheme that is transferred overseas and so for the FCA to shine light on the area as a whole is a relief to ensure better practice across the industry”, notes Jonathon Webb.

Montfort itself advocates its own ‘three-pairs-of-eyes’ strategy whereby any pension transfer advice or financial plan developed for a Montfort client is consistently reviewed by three members of the pension transfer specialist department and their affiliated paraplanners.

“Specialising in both domestic and cross-border pension transfer advice, Montfort understands the associated complexities across individual client cases”, affirms Geraint Davies.

“Montfort ensures its own greatest due diligence by a full consideration of a client’s situation to develop tailored financial plans that are bespoke, not in any way commoditised and instead incorporate the collective intellect from its team of financial planners and paraplanners.”

“If regulatory bodies work with a robust checking approach and with the mindset that improvement can always be made, one is halfway there”, states Geraint Davies.

With a high and increasing proportion of overseas-based members transferring their defined benefit pension schemes cross border, the FCA’s call for tighter regulation is particularly welcomed. As one of the first UK-based global financial advisors to specialise in overseas pension transfers, Montfort has witnessed negligence and various oversights by other various IFAs whom carry out overseas defined benefit pension transfers.

“We recently received an advice document from one firm affirming how it had fulfilled its obligations in past providing a transfer report for one of our clients. In actual fact, the report failed to account for the true tax location of the client which could have resulted in a possible 55% tax charge for the client as a result of not completing all due diligence checks”, reveals Geraint Davies.

“It was quite shocking to learn this from our client given any advice that incorporates facets such as tax, visa and pensions in such a complex area of financial planning should always be conjoined and take full account of each advice component”, comments Geraint Davies.

“Such an example provides the FCA concrete evidence of the wrongdoings and inexperience from firms”, adds Geraint Davies.

“In defence of the FCA, such issues do take time to surface and so where they have started to truly come to light, it will hopefully pave the way to a new wave of proper financial conduct and advice that will not miss the watchful eye of regulatory bodies”, says Geraint Davies.

Montfort further deems that any firm working to a contingent charging model should be prioritised as part of the FCA’s crackdown review of advisory firms, in addition to calling for all firms to submit proof of their advice processes.

“It’s my plain and simple view that contingent charging should be banned”, states Geraint Davies. “Such a model of financial advice will inevitably lead to biased recommendations motivated by guaranteed revenue for advisory firms. It’s my hope that this will form a large part of the FCA’s announcement of new regulations surrounding pension transfers due this year.


To contact a member of the Montfort team regarding pension transfers and the firm's own due diligence, email info@montfort-intl.com, call +44 (0)1483 202072 or visit montfort-intl.com

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Image courtesy of the Wall Street Journal; wsj.com

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