An advice firm placing defined benefit (DB) transfer adverts on Facebook is accentuating clients’ inherent biases towards a large transfer value and goes against what the regulator expects, according to ex-FCA technical specialist Rory Pervical.
Smarter Advice, a trading name of Peterborough-based advice firm Tuto Money, has been advertising its DB transfer service on social media through Facebook since July this year.
The adverts click through to the firm’s website, the homepage of which offers to find a DB transfer value for free, and says it will only charge clients if they decide to go through with the transfer.
The Smarter Advice website reads: “Do you know the cash value of your company pension? Most people are surprised how high the cash transfer value can be for their company pensions, ‘a recent client with a £9,205 annual pension was offered a transfer value of £324,828′. This meant they had the option to take an immediate £81,207 tax free lump sum!”
The Facebook posts have taglines that include: “Most people are surprised how high the cash transfer value can be for their company pension”, and “six million people with DB pensions have seen their transfer values shoot up in the last year”.
One post also includes a case study of one individual who worked at Tata Steel and had used the firm to transfer his DB pension. The case study lists the ways the individual benefitted from his decision.
Examples of the adverts include the following:
‘Clients fixated on large cash value’
Former Financial Conduct Authority (FCA) technical specialist Percival said the firm appeared to be ignoring the regulator’s concerns about behavioural science and how people think and make decisions.
The FCA was worried clients could become overly fixated on the large cash value often involved in DB transfers, he said, which is why its consultation paper on pension transfers ‘CP17/16’ proposed a ‘transfer value comparator’ that should allow advisers to give consumers an understanding of the quantitative value of their DB scheme.
“My concern is that [this firm] is accentuating that bias: it’s going directly in the face of what the regulator thinks advisers should be doing,” Percival said.
‘Incentive to recommend transfer’
Percival also raised concerns about the firm’s charging method – offering a free consultation and then only charging the potential client if they choose to go through with the transfer.
“Often advisers think in terms of just around giving advice, the numbers around doing pension transfers, and so on,” he said. “I think there’s a strong case for advisers to understand more about how people make decisions, both from their client’s perspective but also managing their own biases.”
If firms are doing DB transfers on a contigent charging basis – getting paid for client transfers but not being paid if the recommendations stay where they are – there is “clearly” an incentive for the adviser to recommend a transfer, Percival added.
“Even if they’re trying to be professional and only advise in the right situations, subconsciously they will still be playing up the factors in their head that work in their favour, and playing down the factors that work against it.
“On the face of it, it doesn’t look like a very healthy approach.”
‘Tarnishes the whole community’
Niche IFA director and Chartered financial planner Ray Adams said the advertising was “irresponsible”, arguing that telling people they could be entitled to cash ‘now’ is “completely the wrong headline”.
He also said he was saddened because behaviour like Smarter Advice’s [Tuto Money] tarnishes the adviser community as a whole.
“Facebook adverts like this are not helping people when they need proper advice to help them make decisions,” he added.
“If we’re going to be financial advisers and hold up the highest levels of integrity, then if we’re going to put adverts out they need to be balanced. From my point of view it’s incredibly frustrating.”
Tuto Money said the relevant people were not available when contacted by Professional Adviser for comment.