Generally we're all aware of the main risks to our businesses however, sometimes they are unforeseen and the hazards appear to come “out of the blue”. A recent adjudication by the Financial Ombudsman Service (FOS) has perhaps highlighted one of these.
How your client can cost you money
The FOS ruling was against an unnamed Financial Adviser for failing to advise an emigrating couple on the option of transferring UK pensions into a Qualifying Recognised Overseas Pension Schemes (QROPS) and for failing to inform them he would no longer be able to give them ongoing advice once they left the UK. Note - the adviser settled quickly and directly with the client; his PI insurer did not cover this claim, so he was left to settle out of his own pocket.
What does this mean for you?
For many years now, at least 250,000 British nationals have left the UK on annual basis, with the vast majority relocating in mainland Europe. Thus you or your business is highly likely to have one or more clients living abroad – or planning to do so.
Many UK advisers, understandably, continue to advise clients that move abroad – whether ahead of that move or afterwards, or both. This ruling would seem to lead to a very straightforward conclusion; if you are an independent adviser (or a restricted one that advises on pensions) you need to advise clients, upon their decision to move, on QROPS or at the very least, make them aware of these vehicles and assist them in receiving relevant information and/or advice.
These clients may generally be high net worth or higher earners, although they will almost certainly only represent a modest ratio of your total revenue. Thus the risk they represent may be somewhat disproportionate.
What is QROPS and what does it mean to you?
QROPS is a piece of legislation, introduced in 2006, predominantly as a response to EU legislation on the freedom of movement of labour and income. It created criteria for a type of pension product UK pension funds could be transferred into without any tax or unapproved transfer charges. QROPS – the term is now generally used to refer to the pension schemes themselves – tend to be viewed as pension vehicles for UK non-residents, or clients planning to live/retire abroad. They are unregulated by the FCA and, although I am not aware of any plans for this to change, it is always possible of course that regulation covering this area may appear.
There are two pieces of good news: firstly, there are potentially some fairly easy and cost-effective ways to alleviate, remove or reduce this risk. The second I shall explain in my next article!