12 tips to keep DB transfer PI costs down

By Will Grahame-Clarke, 9 Jul 18

Professional Indemnity insurers have a problem with pension transfers, so broker Howdens has put together 12 things advisers can do to help mitigate the risks and the costs.

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The reasons insuring advisers carrying out defined benefit pension transfers is becoming expensive are obvious; the UK’s Financial Conduct Authority has said too many recommendations to move are unsuitable or unclear, and the costs of rectifying unsuitable advice are huge.

The FCA’s starting assumption is that transferring is wrong for most clients, and this has not changed, said Howdens.

You only need to look at the schemes that have put pensions into non-standard and unsuitable investments, such as storage pods and Cape Verde property, to appreciate the regulator’s point of view.

And it’s not just the FCA that is taking a stern approach.

With growing numbers of mis-selling complaints landing on the doorstep of the Financial Ombudsman Service, the FOS has indicated to Howdens that any deviation from best practice will be looked upon dimly, which has implications for advisers and therefore insurers.

But DB transfers are good business for excellent advisers and suitable for a number of clients for various reasons.

So, what can be done to help clients?

Ensure your advisers are appropriately qualified;
Ensure that your insurers know you are operating in this area and how;
Ensure you have a fully documented process;
Ensure the advice is holistic and in-line with best practice;
Ensure that you gather all relevant information and that you document this, it will be helpful to summarise this information for insurers at your next renewal;
Document fully the mathematical calculations, comparing the differences between taking early retirement and the cash free sum and pension by remaining in the scheme from the opportunity to transfer – the calculations can be very persuasive;
Document the number of transfers you discuss but reject early;
Keep up to date with any information from the FCA and be prepared to tweak processes;
Look carefully at other assets;
Understand the client’s requirements for funds in retirement;
Do look at death benefits and IHT planning;

And finally, insurers will want to know whether you have ever given pension transfer advice to a third-party IFA; ever outsourced pension advice; and if you have undertaken pension transfers on an execution only or insistent client basis.