Insistent DB Transfer Clients Putting Themselves at Risk



Posted on: 28th March 2017

The number of UK citizens requesting financial advisors’ ‘rubber stamps’ for their defined benefit transfers is accelerating rapidly, as a growing number of savers edge closer to retirement post-pension freedoms. Speaking on behalf of IFS Wealth & Pensions, director Alan Chan commented on a significant rise in the number of queries and requests over the past couple of years, from those looking to transfer their DB funds into their chosen investments with self-invested personal pensions (SIPP).

As it stands, legislation currently requires those aged 55-years or over with a cash equivalent transfer value of £30,000 or more to first access expert financial advice, before being able to go ahead with a DB transfer. However, Chan commented that in his experience and his predictions for the future, he believes that most of those interested in DB transfers will regard accessing financial advice as a simple ‘box to tick’, rather than an important opportunity to explore available options.

Many customers are requesting brief five-minute sessions to cover the formalities and do not expect to pay more than £50 to get the job done.

“It needs addressing because it could be a potential issue. It’s not going to stop. More and more people are going to be approaching retirement and it’s going to be an increasing trend,” he said.

“Obviously we’re thinking ‘we don’t know anything about that type of [SIPP investment] scheme, we’d never recommend it and the transfer from the DB scheme is high risk anyway’, so it sends alarm bells. It’s a problem that’s brewing up.”

Providing customers with support and guidance on high risk investments within SIPPs has traditionally proved problematic for the financial advice sector, given the way in which the industry was forced to pay compensations in the event of failed investments as set out in the terms of the Financial Services Compensation Scheme (FSCS).

As far as Chan is concerned, the problem lies primarily with the way in which too many clients who insist on DB transfers are not listening to and/or accessing the advice and information they need. Instead, insistent clients often end up being grossly misled.

“Whoever they [the consumers] go to, they’ve said the IFA has to sign a form, not full advice, just get the form signed,” he commented.

“So, from their perspective it’s a five-minute job: they come in, get you to sign the form, pay you a fee to certify the document and that’s it. The expectation is set completely wrong but the public needs some more education around that.”

He went on to explain that in most instances, customers are more than happy to listen to advice and intelligently explore the opportunities available to them, once they are informed of the critical importance of comprehensive advice.

For his customers, it’s a case of all or nothing – those refusing to undertake the full advice process are refused cooperation.

“We do stand our ground on that part and we won’t budge at all because it’s to protect us and to protect the consumer,” he said.

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