The PFS recently updated its Good Practice Guide on Defined Benefit Pension Transfers. It is very straightforward and the good practice guidance it gives is pretty much a reiteration of the FCA views on the various aspects of advising on DB Transfers. As such it is a useful document, especially as it contains a list of, and links to, the key regulatory reference material, rules, alerts etc. 

However, we do not agree with the PFS view that advisers should take a blanket approach and not facilitate a transfer against their own professional advice. The document states … 

“The Personal Finance Society is of the view that as professionals, advisers should not facilitate a transfer against their own professional advice.

Those that choose to deal with ‘insistent clients’ are party to arranging an unsuitable solution and as such, might be deemed liable in the event of a future complaint in the absence of any guarantees or input from the regulator on how the Financial Ombudsman Service will interpret such claims.

In the meantime, we continue to urge the government and regulator to define acceptable actions where a client’s informed choice differs from the advisers view of ‘objectives: needs and wants’ and introduce new rules which safeguard advisers against future mis selling claims from ‘insistent clients’.”

It is easy to understand why the PFS would take this position. As an ‘industry body’ whose guidance PFS members and others might ‘rely’ on, they fear that they themselves could become potentially liable, at least to claims of liability, in the event of future issues with insistent client business. It is also totally understandable that advice firms might choose not to deal with insistent clients – that is a commercial decision that each firm is perfectly entitled to make. However, both of these positions are problematic in our view, not least because they are too simplistic and do not adequately consider the wider implications. 

Deferred pension scheme members have long had the right to transfer the value of their benefits to another arrangement. The Pensions Act 2015 created additional rights (some would say temptations) for individuals to access their pension funds earlier than the scheme NRD (ignoring the possibility of early retirement being available under the scheme), and, in particular, to take the PCLS without having to take pension if they transfer into a drawdown arrangement. Readers will have their own views on whether the pension freedoms were a good thing or not but that is largely irrelevant. What matters is that those rights exist – legal rights conferred on scheme members by statute. The supposed safety net was to mandate advice where the TV exceeds £30k. This figure appears to be totally arbitrary. It could be argued that the smaller the pot, the more the member is likely to be relying on the income from that pot for basic retirement income needs and probably more likely to be financially inexperienced and in need of advice. However, £30k is the threshold that has been set and we need to work with that. 

The advice safety net fails, of course, where the advice provided is unsuitable, but, where advice is given that meets the required standards, the result is a suitable recommendation either to transfer or to retain the scheme benefit.  At this point the adviser has done a ‘professional job’ and has met his or her legal obligation to act in the client’s best interests. All is well with the world.

But, hold on a minute! What about the client who, for whatever reason, decides to transfer contrary to the adviser’s recommendation that the client should not transfer? It is important to remember that the pension pot belongs to the clients and they are entitled to do as they please with it, within the rules. Transferring as an insistent client is within the rules. The fact that Trustees are prohibited from expressing a view on the outcome of the advice the member has received or blocking a transfer if they do not agree with the advice, is a further indication that law makers and the regulatory bodies recognise that, ultimately, the pension fund belongs to the member. 

And implementing such a transfer for an insistent client is also within the rules. The FCA have issued guidance (COBS 9.5.A)on how it should be done. There is really no issue for advisers who have a robust and compliant process for dealing with the occasional insistent client, but problems will rightly face firms that do not implement the process according to the FCA guidance, or that have a large number of insistent clients, which begs other questions. In our experience, the problem around transfer advice does not sit with insistent clients done properly, or advice to transfer or stay in the scheme, again done properly. The problem is with unsuitable or unclear advice and / or poor process. 

Firms, having given advice, are obliged to provide a confirmation of advice letter, which is all that is required for any member to transfer their pot, so they can transfer out anyway. However, the average member is likely to need a bit of help, not with the transfer out bit but with the transfer in bit. Access to the forms could be difficult and many providers might not deal with individuals except through advisers anyway. All of this serves to thwart the member’s legal rights to transfer and, if over 55, to access his/her PCLS and/or income. That does not seem right. 

The root cause of the dilemma is pretty clear. 

1. there are two conflicting statutes – the Pensions Act 2015, which confers rights on scheme members and a requirement to take advice (if TV >£30k) and the FCA COBS rules, which oblige advisers to give suitable advice and act in the client’s best interests;
2. there are two contradictory FCA positions – the client’s best interests rule (COBS 2.1.1), which states …
   “A firm must act honestly, fairly and professionally in accordance with the best interests of its client (the client’s best interests rule).”
   … and the guidance around insistent clients (COBS 9.5A) which clearly permits doing business on this basis where, by definition, the advice not to transfer was the adviser’s opinion of what represented the client’s best interests. COBS 9.5A specifically recognises this conflict and states that the guidance sets out how firms can comply with the best interests rule.

We use the word ‘opinion’ here for good reason. Transfer advice is usually based around the weight given to various aspects; the critical yield, the client’s view on risk, the client’s objectives and needs and so on. A recommendation to transfer or not is built on the adviser’s view of the overall balance of these different factors and, in our experience, is often ultimately subjective anyway. 

There is also a contradiction in the position of firms that refuse to deal with insistent clients. If an adviser recommends the client’s best interest is to transfer, yet the client insists that (s)he does not want to, there is no process whereby the adviser insists on the client transferring. As there is no mechanism by which this could happen in practice, the analogy is perhaps unrealistic but you get the point. On the one hand, the client is prevented, or at least obstructed, from dealing with his/her money in a way that the law permits. On the other hand, the client is permitted to act as he/she wishes with his/her money, as the law permits. It is inconsistent. 

Finally, consider what would happen if every firm refused to deal with insistent clients. Those clients would be disenfranchised from their legal rights by the actions of a group of people and firms that have no legal authority to deprive them of those rights.