Background: The Current Environment
Financial advice, and in particular pensions and pension transfers, are in a state of major transition. There has been the FSA’s thematic review into pension switching, A-day changes are still being felt, the emergence of wraps and more huge changes to the pensions landscape scheduled for 2012.
With these aspects in mind, it is no wonder that many financial advisers are somewhat apprehensive about pension transfers and are looking for a solution to cut through these issues.
The FSA’s Thematic Review Into Pension Switching
Possibly the most significant publication in terms of pension transfers (or 'switching' as the FSA now refer to it) was the paper published by the FSA in December 2008 entitled "Quality of advice on pension switching: A report on the findings of a thematic review" . This document and the additional information published by the FSA (Pension Switching Advice) were a wake up call for many advisers. In this paper, the FSA highlighted four key areas that they were concerned about, namely:
|The switch involved extra product costs without good reason (79% of unsuitable cases)|
|The fund(s) recommended were not suitable for the customer’s attitude to risk and personal circumstances (40% of unsuitable cases)|
|The adviser failed to explain the need for, or put in place, ongoing reviews when these are necessary (26% of unsuitable cases)|
|The switch involved loss of benefits from the ceding scheme without good reason (14% of unsuitable cases).|
The FSA deemed that the pension transfer advice given was unsuitable in 16% of the cases studied with around a quarter of firms providing unsuitable advice in a third or more of the cases sampled.
Following this review, the FSA summoned many advisers to roadshows to impart on them the importance of ensuring pension transfers are conducted compliantly and that the areas they highlighted were addressed.
The Pension Performance Review Process has always addressed each of these areas in detail even long before the thematic review was published. Where transfers that involve extra charges are recommended, the client suitability reports detail each area of analysis showing how and why the recommended product is superior, fully justifying any additional charges. An inherent part of the system is an inbuilt risk profiling tool which ensures that each client has a portfolio in line with their specific needs and risk tolerance and that this is clearly evidenced and documented for compliance purposes. A central tenet of the Pension Performance Review Process is to review clients’ investments regularly, providing an active ongoing advice process. Finally, the system ensures that it is almost impossible to miss additional pension benefits (such as GARs) due to the process driven approach to inputting and evaluating a client’s existing pensions.
From all sides, the Pension Performance Review Process has the FSA’s thematic review covered.
A-day – Pension Simplification
Following A-day back in April 2006, huge changes were brought about in the pensions industry. In general, these simplified matters, but the transitional years post A-day have been anything but simple for many advisers. Some of the most complex matters involved tax-free cash (or ‘Pension Commencement Lump Sum’ as it is now to be called). Protecting any entitlement to pension commencement lump sum is of central importance when advising on any occupational pensions. The Pension Performance Review Process makes this easy with a simple procedure to check the client’s entitlement and then asks for a protection method if applicable. Within a few clicks, you can have your client suitability report covering off the whole aspect of pension commencement lump sum; how much is available and how this can be protected.
The Emergence Of Wraps
Most advisers are more than aware of companies offering wraps or platforms. The financial advice industry, like most others, is starting to wake up to the fact that computer based systems are the future and business is moving online. Running in parallel, many advisers are now seeing the opportunity to add value to their client proposition by ditching underperforming managed or with profits funds and offering a more tailored, investment led approach to pensions – in line with ISAs, bonds and other investment vehicles. The information and analytical tools available to all advisers now mean that risk profiling, fund picking, rebalancing and fund performance are second nature to many forward thinking advisers and increasingly this is expected by higher net worth clients.
The Pension Performance Review Process is designed with this vision in mind. No longer is a pure cost comparison enough when it comes to pension transfers; no longer will advisers have to battle with cost comparison systems when recommending wraps and how to justify additional wrap costs and explain the additional benefits to clients. The Pension Performance Review Process covers all aspects relating to wrap use to ensure both you and your clients get the most from their pensions though the effective utilisation of wraps.
Changes In 2012
The pensions industry is ever changing and with the end of Protected Rights, the introduction of auto-enrollment and the Retail Distribution Review implementation coming into affect in 2012, there is a steady flow of changes. With so much change and so many technical and procedural points to keep on top of in terms of processing business and compliance requirements, it is essential that advisers keep abreast of each development and how it may effect their business. In terms of pension transfers, The Pension Performance Review Process is constantly evolving to deliver advisers a continual stream of improvements and innovations to deal with the changing environment as it comes, keeping users one step ahead of the competition.
The Next Step: Introducing The Complete Process.
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