In the wake of reports that more than 130 suspected phoenixing cases had been referred to the Financial Conduct Authority, the group chief executive of Momentum Pensions took to LinkedIn to vent his frustration.
“This is starting to become a massive problem,” Stewart Davies wrote.
Speaking to International Adviser shortly afterwards, he described it as “a fundamental risk area”.
“Some pension transfer specialists are setting up with relative ease; writing a lot of, possibly poor, business; getting suspended by the FCA and then appearing in another form a couple of months later.”
He believes the FCA has identified the problem, “but they’ve got to take action a lot quicker”.
One solution is to undertake reviews of startups soon after they are established, Davies suggested. “Not wait 12 months when they’ve possibly written 1,000 cases.”
Momentum Pensions has already barred a number of pension transfer specialists and Davies said, “there is some coordination among trustees” to freeze out the bad players.
Disjointed market
The increasingly fragmented nature of the market is also a concern, something he partly attributes to the new Maltese pension rules and the number of consultations coming out of the FCA.
It has caused “a staggering level of fragmentation”.
“We’ve seen individual advisers leaving to join other firms, which means a lot of disruption for us because it inevitably leads to a lot of changes of agencies.”
Davies served a two-year term as chair of the Malta Association of Retirement Scheme Practitioners (Marsp) up to December 2019.
In that role he worked to “clarify any misunderstandings or grey areas in terms of the implementation” of the pension rules.
“It has been a challenge because it’s correlated to making sure advisers are appropriately authorised.”
The key issues of full cost and commission disclosure and the introduction of cooling off period are “over the line”, Davies said.
About 5% of it “is still a work in progress” but the bulk of the changes are now bedded in, he added.
Tough conditions
Last year was challenging to say the least and Davies said he can’t recall “sitting in front of an advisory firm that wasn’t significantly down on 2018”.
Momentum Pensions saw revenues grow by nearly 10% in 2019 but that was “certainly slower than previous years”.
Davies believes that rising costs mean advisers are focusing on a lower volume of higher value cases.
Another significant changes has been the shift away from Qrops.
The Qrops market has had its fair share of hits in recent years, with the UK government rolling out a shock 25% charge on transfers to third countries outside of the EU.
With Brexit in full swing, there is a risk that Malta’s status as a key UK pension transfer market will be negatively impacted if the current arrangement is scrapped.
“We’re already planning for that,” Davies said. “Eight out of 10 new cases that we onboard are driven towards the Sipp product.”
About 60% of Momentum’s book is in Qrops products and 40% in the Sipp.
“We expect that the Sipp will become the dominant product this year,” he added.
Laying the foundations
During 2019, Momentum was busy bolstering its Sipp offering.
In April, the firm added a US-compliant product to its range.
“It’s a new part of the market for us,” Davies told IA. “We didn’t have high expectations for 2019, but the pipeline is strong at the moment and we’re expecting it to make a meaningful contribution to turnover this year.”
August saw the pension specialists team up with Ireland-based adviser support and services provider Conexim to roll out a platform option for its existing international Sipp product.
In December, the firm announced that it would cap commission on life products, with effect from January 2020, and it revised the acceptance criteria for its international Sipp.
Davies describes his outlook for 2020 as “pretty optimistic”.
“We’re hoping to roll out some further products during 2020 around the Sipp.”
Acting as gatekeepers
Despite his upbeat outlook, Davies is acutely aware of the rising scrutiny of the pension market, with two recent cases having put the sector firmly under the microscope:
- Manita Khuller took her Guernsey-based pension trustee to court, claiming it failed to protect her DB pensions; and,
- Berkeley Burke, where the defunct Sipp provider carried out no due diligence before accepting non-standard investments.
“We have a strict no non-standard asset policy,” he said. “We don’t accept any esoteric products and, personally, I’m not seeing any demand from advisers for them.”
He believes that the cases arising are “legacy issues”.
“From my perspective, the fundamental risk around accepting that type of asset is capital, because the Sipp provider has to set aside capital if they accept a non-standard asset.”
Firms that are accepting such assets, “must have a huge pool of capital”, Davies added. Less than 2% of Momentum’s cases hold non-standard assets.
The added expectation “from the public, press and regulators is for the trustees to be the gatekeeper and vet every single investment that they onboard”, he continued.
But the added pressure to keep costs low means that is “just not reasonable to do so at current fee levels”.
In terms of fees, Davies agrees that “there has been a race to the bottom”.
“Based on the level of expertise we need, that can’t be done on a low annual fixed-fee basis.
“It doesn’t reflect where the industry is today, in terms of the level of scrutiny and requirements of trustees. Some of those costs need to be offset and I do think fees have got to rise.”
While the firm doesn’t currently have any plans to increase its base fee, “we may seek to introduce some ancillary charges relating to dealing and investment analysis work”.
