As we noted Wednesday and Thursday, it’s becoming increasingly obvious that UK Chancellor Philip Hammond’s unexpected 25% tax on most overseas transfers is already beginning to have a major effect on many offshore advisory firms, some of which had been relying more on their pension transfer business as a source of income than had been generally realised.
Meanwhile, data is emerging that reveals how sales of unit-linked savings and investment life policies in Hong Kong and Singapore have collapsed over the past two years, in response to the introduction of new regulations similar to those brought into the UK market under the Retail Distribution Review in 2013.
This is taking place even as similar rules are about to come into force in other markets around the world, as regulators respond to consumer complaints, and as global moves towards greater transparency begin to bite.
Below, in the third and final instalment of our exploration of how some companies are dealing with these critical issues affecting the global advisory community, Geraint Davies, managing director of the Guildford, England-headquartered, fee-based Montfort International advisory firm, argues that no one who has been paying attention should have been surprised by the Chancellor’s actions on 8 March…
Philip Hammond’s changes to the UK’s pension transfer regime, coupled with other recent UK and overseas regulatory changes, have been a wake-up call for many in the offshore financial advice market.
They have also been good new for those Britons who live outside the UK and who need to plan, though no comfort for those who have already suffered as a lack of regulatory controls in place up until now, and who have consequently suffered at the hands of their overseas advisers.
It should have been obvious, though, that things were not going to be allowed to continue as they were.
Already we are seeing more and more potential customers knocking on our door – although some are surprised at the fees that need to be paid for ‘proper’ advice, even though they’re invariably less than 50% of what they would have paid, unwittingly, to a “rogue” adviser, in the form of undisclosed fees and charges.
The question now, of course, is where we go from here.
For UK-based advisers such as ourselves, at Montfort International, we see our clients as falling into six basic groups, each with its own needs, and each of which has to be considered separately, when preparing for the new cross-border advisory landscape we are now looking at.
First you have those living in the UK, who have moved here from somewhere else, and who typically have non-UK assets and income in addition to British assets and income, and no known date or plans as to when, if ever, they will leave UK.
Then you have those British citizens and foreign nationals who currently live in UK, but who have plans to move abroad in the near future; and a similar group, but whose plans to go abroad are now definite, complete with a set departure date.
Then there are those who currently outside the UK, having left it, but while retaining some UK assets and income – and who have no plans to return to the UK, at least for now.
We’ve also got British and foreign nationals who live outside the UK and who tell us they are planning to come to live in the UK in the near future; and a similar group who, again, have made definitive plans to live here, and have set a date for their move.
Add those categories together, and you have a lot of people who need specialist, cross-border advice. Over the past 20 years, close to 15 million people are estimated to have either moved to or left the UK, and that’s before the impact of Brexit is able to be quantified (which will, of course, depend on what arrangements are made on both sides of the English Channel with respect to Brits and EU nationals living in one another’s territories).
At Montfort, we are continuously seeing clients of this type who have been given advice previously which ranges from having been unsuitable to totally inappropriate. Some have clearly been t
So one of the industry’s biggest challenges in the near future will be seeing to it that the advisers who end up looking after all these people are aware of the myriad new details, let alone the basics, of giving cross-border advice, and who have obtained the increasingly-necessary regulatory permissions to do so.
Expect to see, therefore, a rapid upskilling in the market. (Not a bad thing, given that some studies have shown many of the advisers in this space have no more than five days of formal training, and that typically involves nothing more than sales techniques.)
Also expect to see more policing of the use of qualifications by advisers, such as the FAIQ (Financial Advisers International Qualification, the Chartered Insurance Institute’s lowest level of qualification) and so on, and a growing awareness of which of these qualifications are the most meaningful.
While this is taking place, foresee a continuing washing up on Britain’s shores of individuals who are unhappy about the advice they received in the past, from offshore-based advisers, typically having to do with long-term savings plans and QROPS, for which suitability letters rarely seem to be found, and information about charges and fees, it turns out, was never disclosed.
What will be interesting to see is whether such victims of the old model of offshore advice begin to become less common, as the global move towards greater regulation takes hold. We can but hope.
In the interim we expect there to be a surge in the number of complaints, when the penny drops regarding how many people have been duped. Many of those who currently live overseas and have had their UK pension transferred on the advice they received while abroad, for example, stand a high chance of having received poor advice, growing evidence suggests.
In the meantime, we’ll also be hoping that those who are going overseas now, and in the future, don’t assume they’ll be okay taking advice from just anyone, and will actually take the trouble to find out all they can about whomsoever they entrust to give them advice.
‘Don’t be afraid to ask’
One thing we at Montfort International hope will happen, as the advisory industry comes to terms with the fact that times have changed beyond recognition, is that there will be a greater willingness on the part of those in the industry who are struggling with some aspect of the new regulations to seek out expertise from those who have it, rather than trying to guess at getting it right – even if it means having to pay for the outside expertise, or recommending their client seek out a specialist in the area they are unsure about.
Even before the most recent changes, we noticed that when it came to other UK advisers seeking us out for help – given our reputation for having specialist knowledge about the cross-border space, and overseas pension transfers in particular – it always tended to be the better UK advisers who knocked on our door, not the ones who, you might have thought, would have needed help the most.
We realise, of course, that it’s because they have the technical awareness to recognise complexity when they see it, and when they’re out of their own comfort zone. Like their clients, they will know that expertise comes at a price.
They know, where others may not, for example, that they need specialist permissions to deliver advice, that it just isn’t good enough to say “no worries, I’ll advise you when you’re back in the UK”; they have heard of double tax agreements, and the implications of tax residency.
One thing that always happens whenever a particular product category falls out of favour is that another one is pounced on as its natural successor. So with QROPS/ROPS no longer as easy to recommend – coming, as they now will, with that hard-to-hide 25% Overseas Transfer Charge – we expect to see a sudden rush to promote self-invested personal pensions (SIPPs).
What will be interesting to watch in this space is to what extent the UK advisers of record, or the UK SIPP providers, will come under pressure by the UK Financial Conduct Authority (FCA) to complete more robust due diligence and examination of those introducing SIPP business originating overseas.
We are hopeful that this will be the case, if mayhem for the SIPP industry is to be avoided.
All in all, then, it is clear that we as an industry are facing one heck of a technical climb, where the skill set required to operate in the cross-border advisory marketplace is going to be required to be of a standard that few, for the moment at least, are capable of delivering.
Those few who already are well-prepared for the technical challenge ahead, meanwhile, may find they are deluged for requests for help, from clients as well as from fellow practitioners keen to buy in the skills they don’t (yet) possess.
This story originally appeared in the May, 2017 edition of International Investment magazine. It may be viewed by clicking here.