In my previous article, I highlighted a new and somewhat unforeseen risk to UK IFA businesses. This has arisen due to a recent decision by the Financial Ombudsman Service (FOS). The FOS ruling found that a UK-based adviser had failed 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.
There are presently around 5 million expat Brits around the world and last year alone a further 320,000 emigrated. Given this, you will probably already have one or more expat clients or gain some in the near future. The FOS ruling therefore highlights a risk for you.
There are a number of strategies that you could use to mitigate this risk:
- Provide the necessary advice – this is an obvious solution but not necessarily an easy one to achieve. In order to effectively advise on such matters 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.
- Work with a specialist company/adviser – contracting out some of the work 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 isn’t completely straightforward as you have probably already realised, 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.
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.