The BSPS, currently undergoing a restructure, has been at the centre of ongoing controversy after concerns were raised last year that many members were being given “questionable advice” to transfer out of their defined benefit schemes into defined contribution schemes.
The report says IFAs acted as “vultures” and were seen “hanging around” outside British Steel Pension Scheme (BSPS) roadshows waiting for vulnerable members.
The report further exposes this questionable advice saying many members received advice that was “unsuitable for anyone, apart from very, very experienced retail clients”.
Montfort International’s head of financial planning Eugen Neagu, who gave evidence for the report, described the explanations accompanying the investment recommendations as “bamboozling at best, taking into consideration that the report was addressed to steelworkers with low investment experiences”.
"DB transfer advisers tended to be paid on a contingent charge basis."
He said this was advice that might “pass a compliancy test, but which most certainly would not pass a sniff test”.
According to the report, most of the advice offered to BSPS members was “heavily geared” towards pushing transfers.
It says some IFAs worked in concert with “introducers”, who recruited clients and encouraged them to get a CETV quotation in return for a share of the initial advice fee.
“Celtic Wealth, which worked closely with the regulated Active Wealth, told us it provided sausage and chips lunches at meetings with steelworkers,” the report said.
On 9 February Active Wealth entered voluntary liquidation.
The structure of the fees paid to introducers and IFAs incentivised poor advice, the report says.
Introducers were paid a share of the initial advice fee, which encouraged them to persuade BSPS members to get CETV quotations “on a bulk basis”.
“In turn, DB transfer advisers tended to be paid on a contingent charge basis. Under this fee structure, the IFA was only paid (or is paid significantly more) if the client acted on a recommendation to proceed with a DB transfer,” the report says.
According to the report, Fees charged to BSPS members who chose to transfer would, in effect, subsidise the free advice given to those who did not.
“We heard that contingent fees in respect of BSPS clients were typically around 2% of the transfer value—£8,000 ($11,136 €8,992) on a CETV of £400,000—and could be as high as 4%,” the report said.