The need to update trustee knowledge and understanding
Graeme Delf says training is vital to ensure schemes understand where advice to members is good quality.
Several notable decisions from The Pensions Ombudsman (TPO) have begun to highlight an emerging liability for pension scheme trustees with members who become the victim of mis-selling.
While it is popular to describe all mis-selling as ‘scams', this is neither helpful nor accurate. By far the largest cause is wilfully negligent advice from professional firms, However, whether or not such actions are intended to defraud, the consequences are much the same for the victims and often can be worse. In this respect, while scammers are forced to operate discretely, professional advisers are free to canvass and network amongst scheme members without the same level of restriction.
Awareness
Recent circumstances involving the Rolls-Royce scheme teaches us that, where this kind of adviser focus on a scheme becomes intense, it should be a matter of concern to trustees. Indeed, in the case of Rolls-Royce, the trustees reported their concerns to the Financial Conduct Authority (FCA), resulting in an investigation that has seen at least one firm lose permissions. However, it seems unlikely that such an investigation would have been made without the Rolls-Royce trustees firstly taking steps to inform themselves about the risks facing their members.
Such awareness necessarily starts with trustees having an understanding of the processes involved in pension transfer advice and the regulatory controls surrounding it. However, this isn't an area specifically covered under code seven of The Pensions Regulator's requirement for trustee knowledge and understanding, neither is it something that traditional trustee training typically tends to cover.
The reason for this is that scheme administrators and investment advisers on whom trustees typically rely on for advice in such areas are unlikely to have either the regulatory permissions to undertake, or experience of, pension transfer advice. Likewise, those advisers who do hold permission often struggle with the extensive and often complex nature of regulations and guidance.
Indeed, advising on pension transfers and advising on the regulatory requirements pertaining to such advice are two entirely different areas of expertise. In relation to the latter, while some advisory firms will manage their compliance in house and retain their own regulatory specialist, relatively few will have experience of consulting with trustees, or hold the professional indemnity necessary to do so safely.
Look outside your normal contacts
Therefore, in order to obtain the necessary guidance and training in the advice process and the compliance process trustees are likely to need to look outside the normal range of contacts. The trustees will need to identify trusted partners that combine an appreciation of defined benefit (DB) pension scheme administration; the practicalities of DB transfer advice, and a detailed understanding of the related compliance and risk management.
Having identified a suitable partner for this training and guidance, what form should such training take and what should be its scope? One advantage of lockdown has been that familiarity with and access to video conferencing can
now pretty much be taken for granted in the financial services world. Such media lends itself to the kind of presentation needed to successfully deliver training.
In terms of scope, it's critically important for trustees to understand the regulated perimeter relating to financial advice and the options available for delivering information to members. It's also useful for trustees to understand what pension transfer advice should deliver and how it should be given. Understanding the regulated permissions required to give DB advice, and the different ways in which firms organise their compliance can also help provide a perspective on where risks arise and how to recognise them.
While training and awareness is all well and good, the end goal is solutions. In the case of Rolls-Royce, this was to establish a trusted partnership with a firm of advisers to ensure members have access to good quality and affordable advice. However, this is only one of several arrangements where trustees and specialists can work together.
The point is that having more knowledge can give trustees a perspective on risks that not only allow them to deliver better member outcomes, but actively reduce costs and exposure to the scheme and employer.
By Graeme Delf
Financial Adviser at Leabold Financial Management.