Last year Russell Partington of Burton & Fisher became qualified to carry out defined benefit transfers. But the qualification was only the start. In a six-part series we follow his complex journey from creating a process to gaining FCA approval to a typical case. This week we look at turning cases down and insistent clients.

    Can you describe an occasion when you’ve turned down a DB transfer request?

    There have been three or four of these cases recently.

    One client had lost his job; his pension pot was well over £¾ million, but I didn’t feel he was mentally in the right place to make such a massive decision. Although you think from a business point of view “Wow, that’s £800,000 AUA,” I could see it had all the warning signs.

    In two or three years’ time, if that client comes back, he’ll probably be in a better place than in the aftermath of losing his job, and that might be different. But at that point in time, I wasn’t comfortable with it.

    There have been a couple of other cases where the pot has been small, but again, I didn’t feel that the client was knowledgeable enough to make such a big decision.

    How easy is it to have this conversation?

    It differs. Sometimes all they see is pound signs!

    A perfect example is of a client who has left their company many years ago. They get the paperwork through which says “You’re going to get £3,000 a year when you retire for the rest of your life.” Inflation is so low at the moment it’s very similar to the statement they got the year before and perhaps even the year before that, so they’re thinking “This isn’t going to change my life, how much is it worth as a cash sum to transfer?”

    Often you’ll be looking at 30 times that income. So they then get a piece of paper saying that they can take the money and it’s going to be £90,000. So then they think “Wow, I can take £90,000 and be in complete control of what I do with that money or I can have £3,000 a year and I’m going to be 95 by the time I’ve exhausted that £90,000.”

    When you look at it like that, you can understand why people are so keen to take the money and run. But the whole thing about taking this £90,000 as a lump sum, 25% tax free, and then the rest of it being so accessible, is that if they see a car that they would never have thought of being able to afford before and they buy it, 10 years down the line this pot of money that was supposed last a lifetime has gone.

    The issue is around educating them around that concept.

    I think in time there will be a hybrid solution where instead of taking all your DB pot you will perhaps leave half of it and take half. There are firms out there offering a few hybrid products where you can say your DB was going to give you £3,000 a year, your transfer pot is £90,000 but they can give you an annuity with £70,000, guarantee you £3,000 a year and also stick £20,000 in a drawdown pot.

    Things are evolving all the time and I think they have to.

    Talk us through the insistent client process

    I don’t particularly like using the insistent client process. I’m a qualified adviser, I stand by the advice that I give, and I like my name to be associated with that advice however, being realistic, there will always come a time when I say to a client “Your critical yield is 20%, you’re a level 2 risk. This means there’s no way I’m ever going to make you enough money to replace what you’re giving up. I don’t feel it’s right for you for whatever reason – you’ve got a young family, or whatever.” And they then say, “Thanks very much Russ, but I want to do it.”

    Our compliance officer only expects to see two or three a year of these, but I think we’ll start to see a lot more.

    The journey we undertake with those at the moment is similar to other transfer clients, but our pre-sale suitability report is worded in such a way to state that our advice is to retain it.

    At the end of that suitability report there is a free form box for the client to say that they appreciate the advice we’ve given them to retain it, but that they want to go ahead and they want us to facilitate it.

    Our understanding as a firm is that as long as we follow that process and we class them and deal with them as an insistent client, then we have no liability from our PI insurance. I know a number of firms that do DB work and every client is deemed an insistent client – we don’t want to ever get to that stage.

    I was told about a case recently where the client had been insistent, but the ombudsman had still gone against the adviser because they had said they should have saved the client from himself. In that situation you wonder where the buck stops. What’s the use of having an insistent client process if even that’s not going to protect you? Because of this I’d rather tell a client we don’t want to do the transfer for them and advise they go somewhere else.

    We’ve only had one of these cases since qualifying, and we will continue to look after them. But on the whole I’m not comfortable with the insistent client process.

    Next time:Lessons learned
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