2nd October 2014

FEIFA: How to manage that unknown risk

In my last article I highlighted a new risk to adviser businesses that has recently arisen due to a decision by the Financial Ombudsman Service (FOS). In simple terms, the FOS ruling was against an adviser for failing to advise an emigrating couple on the option of transferring UK pensions into a Qualifying Recognised Overseas Pension Schemes (QROPS) and also for failing to inform them that he would no longer be able to give them ongoing advice once they had left the UK.

Given the amount of Brits that have emigrated, and those that will leave these shores in the near future, this is therefore a risk that can affect any UK adviser.

So how can you protect yourself and your business?

There are a number of ways to mitigate this risk, as follows: 

• Advise clients on QROPS – this is an obvious solution but not necessarily an easy one to adopt. In order to effectively advise in this area you will need to know about relevant pension schemes from all of the major QROPS jurisdictions; as an absolute minimum this would include Gibraltar, Malta, the Isle of Man and New Zealand. You will also need to understand the tax frameworks in all of these locations, plus fully appreciate the taxation systems in the country where your clients now reside or intend to move to. And you will also have to take into account any Double Tax Agreements between the pension scheme location and country of residence. 

• Liaise with a company/adviser – in other words, contract out some of the work to obtain the necessary expertise. This would usually entail the outsourced advice encompassing a recommendation of the most relevant QROPS and a summary of the potential taxation implications. You would provide the advice with regards to the potential transfer itself. You will, of course, need to ensure that this company or individual adviser has the necessary knowledge as detailed above. You should also ensure that he has the required licences, regulatory permissions and qualifications to advise on pensions within your client’s jurisdiction. 

• Refer the client – in this scenario the whole advisory process is provided and handled by the company you have outsourced to. In addition to the requirements detailed above, if your client is yet to leave the UK, you will also have to ensure that this company has the necessary permissions to advise on pensions in the UK as well.

This probably sounds a little complicated – to be honest, it isn’t completely straightforward, but there is help out there that can make the whole process reasonably easy and, most importantly, mitigate the potentially significant risk to your business.

At FEIFA (the Federation of European IFAs) we have advisory companies operating across the whole of the Continent. We are also aware of companies specializing in this area of advice in other areas of the world. Where our member companies are concerned we have independently assessed their regulatory status and we know what permissions and licensing they possess. In addition, we can and do assist UK advisers in obtaining the necessary knowledge and regulatory permissions to do the job themselves, where that strategy is suitable.  In short, we can assist.

It is worth remembering that the adviser in the FOS case found that his PI insurer did not cover this claim as it was not included in his policy conditions - so he settled out of his own pocket! It may well be worth protecting your pocket against this threat.

Paul Stanfield is CEO of FEIFA, the Federation of European IFAs, a non-profit trade association that represents advisers that are based or have clients on the Continent. He can be contacted at pstanfield@feifa.eu or on +44(0)7875 219462.

Regulation, Pensions