SIPP providers warn against ‘indefensible’ insistent client pension transfers

Self-invested personal pension (SIPP) providers have warned against accepting insistent client defined benefit (DB) transfers, saying the practice was “indefensible” from the outset.

Dentons Pensions director of technical Martin Tilley said “under no circumstances” would Dentons take an insistent client as the vested interests presented to them as a SIPP provider would make the transaction “questionable”.

He said: “We have a vested interest, if we took the client on board they would pay us a fee and yet the transfer would be against a regulated transfer specialists’ advice who said it’s a bad idea. I think that makes any SIPP provider questionable as to the reasons why they’re doing it.”

He added: “[The client] could make a very high risk but acceptable investment with the money that goes spectacularly wrong and then you have to look at who was the regulated party that facilitated them doing what they wanted to do – it’s the SIPP provider.”

SIPP providers typically have to carry out due diligence on the investments on their books, not on their suitability for a particular client. However, it is a contentious issue, with the ombudsman ruling against SIPP providers for failing to spot unsuitable investments in the past.

Complaints about SIPPs surged in the past year, with high-risk underlying investments representing a big part of the issue.

The problem is, with insistent clients the SIPP provider would be facilitating a transaction it knows is not in the client’s best interests to begin with. “I don’t think that’s defensible,” said Tilley.

Suffolk Life pension technical manager Jessica List agreed the best way for SIPP providers was to err on the side of caution, saying her firm asked for advice for all sizes of funds and always required a positive recommendation to transfer.

Similarly, Liberty SIPP managing director John Fox said: ”SIPP providers, as with all parties involved, need to exercise real caution when it comes to defined benefit transfers.

”From the very outset of pension freedoms our policy has been to refuse to accept insistent clients and we would expect others to do the same.”

‘Question For The Adviser’

However AJ Bell head of platform technical Mike Morrison said his firm merely required an adviser present when dealing with a DB transfer into a SIPP, regardless of whether the recommendation was positive or negative.

“From our perspective the concept of an insistent client is really one for the adviser, so as long as we have an adviser present when someone comes to set up a SIPP with us, we’re not overly concerned,” said Morrison.

“If there’s anything out of the ordinary, we’ll ask questions, but generally it’s more of a question for the adviser to document than the provider.”

The Financial Conduct Authority (FCA) said in June it was ready to leave insistent clients in advisers’ hands. It would not seek to prevent pension transfers away from safeguarded benefits when an adviser’s recommendation was against it, and it was up to the adviser whether they facilitated the transfer in such cases, it said.

Research by Prudential conducted earlier this year found almost half (44%) of advisers had seen an increase in insistent clients wanting to push ahead with DB pension transfers despite their initial recommendation to keep their safeguarded benefits.

It also found more than half (51%) of advisers with insistent clients proceeded to facilitate the transfer after the client disagreed with their recommendation.

Adviser View

Despite this, DFP Solutions IFA Sean Irwin felt providers refusing to put insistent client transfers through was “the right thing to do”. He said: “[The client] might not totally understand what the guaranteed elements they’re giving up are, which is probably why they’re so insistent.”

Advies IFA Alex Reynolds added: “Providers have similar problems to advisers, someone could potentially complain against a provider in the future as well, so it’s down to the claims mentality that people have.”