Reviewing Pensions Fairly Bankhall Adviser Forum Presentation by Paul Rutland Zurich Financial Services For intermediary use only – not for use with your clients

2 29/1/2009 Compliance Update : March 2009 Background to the review Scope Findings Key areas of concern Your actions Compliance Update March 2009 Issued December 2008

3 29/1/2009 Today’s objectives and content Future pension switches - Threat or Opportunity? A view of the world from your client’s perspective A view of the world from the Regulator’s perspective From your perspective: show how Zurich can help you meet client’s needs more easily in a safe/compliant way and help you write more business For today’s purpose, the world is ‘the pension review market’

1. In your client’s shoes 4

5 29/1/2009 Why might they wish to transfer? improve their income in retirement reduce costs optimise investment returns take advantage of wider investment options or extra product features convenience (everything in one place) gain more involvement and control emotive/personal reasons (redundancy, bad service, company may go bust) Every client is different

2. FSA Perspective 6

7 29/1/2009 Five key elements 1.Charges 2.Funds 3.Lost benefits 4.Review 5.Documentation & evidence

2.1 Charges 8

9 29/1/2009 Charges – no industry standard way of analysis Making a charges comparison – assessment What if charges are more expensive - justification

10 29/1/2009 Poor Practice: Cost Comparisons Source : FSA Thematic Review December 2008 Solution: Charge comparison on actual funds, not cheapest

11 29/1/2009 Charges - FSA view in detail Must be ‘valid grounds to justify the extra cost’ Examples of grounds that might not be valid: Investment flexibility and choice…………that ends up not being used Fund performance….. ……..………………but who knows that it will be better? Will be able to use drawdown facility…..but never gets used Consolidation………………………………..but was never explained or justified Stakeholder plan would have done just as good a job Client needs have to be at heart of process

12 29/1/2009 Good Practice: Cost Comparisons Source : FSA Thematic Review December 2008

13 29/1/2009 A ‘comparison grid’ to compare charges is what’s needed Comparative illustrations need to be for the same retirement ages, the actual funds the client selects and with the correct fund charges applied.

14 29/1/2009 Justifying any increase in charges Can be justified by extra benefits Benefits must be relevant to needs, and not hypothetical Customer must understand and agree with rationale Must be documented If projections are significantly better from the existing policy, it is unlikely to be suitable advice to recommend a switch.

2.2 Lost Benefits 15

16 29/1/2009 Lost benefits FSA focus on features and benefits in old scheme which have value but not replicated in new scheme If proper Consumer Outcome is still best served by switch, customer needs to understand what they’re giving up FSA mention – Guaranteed annuity rates – With profits guarantees – GMPs from (presumably) S.32 There are also other ‘guarantees’ that need full analysis eg. growth rates Must investigate, discuss with client, and most importantly document any discussion/decisions

17 29/1/2009 Good Practice: Loss of Benefits Source : FSA Thematic Review December 2008 Learning Point: If GAR is available, how valuable is it?

2.3 Funds 18

19 29/1/2009 No industry wide definition of risk Advisers can use their own They might consider using a ‘ Risk Profiler Tool’ And then match the risk to funds

20 29/1/2009 Here’s a view of suitability of funds “The way we judge a case has nothing to do with the subsequent performance of an investment. Instead we look at how risk profile was measured and try to determine whether or not the management of the funds followed the pattern agreed at the outset with the investor. It is important to ensure that both parties are clear about what sort of approach should be taken” David Cresswell, Ombudsman service 10 April 2005

21 29/1/2009 New funds - FSA view in detail Consider attitude to risk and personal circumstances, and how the recommendation reflects them Must also consider customer objectives financial situation financial knowledge Experience their age (term) other relevant personal circumstances including existing investments Be aware of nature and level of risk of funds …..and benefits of diversity

22 29/1/2009 With-Profits fund switches & reviews Nothing more than full analysis will do: Identify the exact with-profits fund Analyse financial strength and performance Find the fund breakdown from Principals and Practices of Financial Management (PPFM) Copy CFPPFM to client? Note bonus history Note asset mix Relate current with-profit asset mix to the client’s risk profile

23 29/1/2009 Good Practice: Customer’s ATR and personal circumstances Source : FSA Thematic Review December 2008

24 29/1/2009 What does the Zurich Risk Profiler do? Allows you to ask the client seven multiple choice questions (paper or online) Will play back risk profile (detailed description) resulting from seven questions Provides written evidence / audit trail CLIENT FILE Alan Smith Existing Pension Plan

25 29/1/2009 Use Zurich Portfolio Planner with existing funds NEED TO LOOK AT ANNUAL STATEMENT TO ENSURE RIGHT FUND!

26 29/1/2009 ZPP will compare it with model portfolio: action needed?

27 29/1/2009 Re-forecasts based on fund selection

2.4 Review 28

29 29/1/2009 Review Ensure customers understand the need for reviews Must document the need for review Asset allocation approach means reviews are necessary If reviews are offered, must make them happen

30 29/1/2009 Good practice One firm had a very clear explanation in the template suitability report describing why ongoing reviews and rebalancing were needed for their portfolios (where an asset allocation approach had been recommended). Their standard service for customers also incorporated a full annual review and biannual rebalancing. Good Practice: Explaining & providing ongoing advice Source : FSA Thematic Review December 2008

31 29/1/2009 Planning tools can capture the need to review Asks up front for a review date (assumes one year away) Allows subsequent search for all reviews due in given period

32 29/1/2009 Do the review and rebalance if necessary Re-check attitude to risk Review portfolio of funds continued alignment with model portfolio performance of individual funds rebalance/switch Redefine retirement goals and re-forecast Clients’ must be made fully aware of the cost implications of ongoing advice, which should be documented in the suitability report.

33 29/1/ One member’s perspective

34 29/1/2009 One member: Checklist of required documents ? 1. Full fact find 2. Written confirmation of options & funds available of existing plan, fund and transfer value 3. Illustration - ceding plan 4. Illustration - proposed plan 5. ‘Critical Yield’ calculation if PMVs in 4. lower than 3. (company ‘tolerance’ set) 6. Approval form based on questions driven out from FSA Review Template 7. Suitability Report The FSA are looking for a clear comparison as to why the fund switch is being recommended and for what reasons Consider carefully what you would do to ensure regulatory requirements are met if a pension switching report is not completed.

35 29/1/2009 Other documentation & evidence Documented Company/firm procedures Suitability Report and other compliance requirements Checklist based on FSA template Risk profiling and portfolio planning tool For asset allocation discussion and audit trail Projected Maturity Value template or switch analysis tool “Disclosure of all relevant downsides cannot make unsuitable advice suitable” FSA in Notes to Review Template, Feb 2008

Handset Question Would you be interested in attending a regional workshop on ‘pension switching’ in line of the FSA thematic review? Press 1 – Yes Press 2 – No Press 3 – I am attending this afternoons workshop

37 29/1/2009 Reason’s to consider Zurich

38 29/1/2009 Financial strength Ratings of Zurich Assurance Ltd as of July 2008 In July 2008, Moody’s confirmed the upgraded rating they had given Zurich Assurance Ltd in The A2 rating comes with a stable outlook. In addition ZAL holds a Financial Strength rating of B+ (“Very Strong”) with AKG, in line with, or ahead of most of our competitors All rating agencies provide Zurich with stable or positive outlooks Zurich’s financial strength ratings remain consistent and strong

39 29/1/2009 Panel of 177 pension funds from 34 fund managers Wide range of assets classes, geographical regions & risk levels Three step process before new funds/fund managers are added to ‘panel’ 1.Fund development/governance team – pricing, investment process, fund manager longevity and long-term performance capability, marketing support 2.Investment Committee – brand and strategic fit, confirmation of appropriate systems and controls 3.TCF assessment – value for money test in the hands of the customer (PRAC) Funds – reducing risk through strong funds governance

40 29/1/2009 Bankhall members offer 1% extra - extended Can be used to reduce charges Could also be taken as commission Default - reduce fund-based charge as this benefits longer term plans, no commission claw back in early years for adviser

41 29/1/2009 Helping you at every stage - marketing support Keep your options open Helps customer prepare for pre-retirement review meeting For the Customer Transferring your pension – need to know Helps customer understand implications of a transfer if that’s what’s been agreed or suggested Why a SIPP? Explains why a SIPP, even if you don’t need it right away

42 29/1/2009 Helping you at every stage - marketing support What happens now? Explains transfer process and why it can take a while For the Customer Hitting all the right notes Help with a pension review PPF Presenter Zurich branded version of what Sterling have

43 29/1/2009 Zurich Portfolio Planner Built around client’s objectives/goals. Client ATR Questionnaire Works with existing investments, not just new business. Life, mutual and pension tax wrappers. Covers whole funds’ market (26,000 funds), not just our funds. Charges are not product specific (but they can be tailored). Produces clear and informative reports. FTRC ‘eee’ rated.

Website 44

45 29/1/2009 Summary

46 29/1/2009 Threat or Opportunity? Potential market still huge We now know what ‘good’ looks like FSA ‘file review template’ available as guidance Portfolio reviews essential given current market conditions With-profit funds need reviewing in line with FSA Sector Briefing Need consistent & robust processes Review stresses putting the customer ‘needs’ at the heart of process Documentation and evidence!

47 29/1/2009 Bankhall Publications: Pension Switching Bankhall Compliance Bulletin B171 (Jan) - Background to the FSA thematic review - Scope - Findings - Key areas of concern - Your actions Bankhall Compliance Bulletin B173 (Feb) - Practical and technical guidance in reviewing pension switching cases “A Guide to Pension Switching” - A comprehensive adviser guide to how to conduct a pension switch analysis All documents can be viewed and downloaded from the Compliance Library on

48 29/1/2009 Zurich can help you every step of the way Support material to help attract customers and prepare them for a meeting Zurich Portfolio Planner A great choice of funds An efficient application process Extra 1% client offer Up front commission if required (Regular Payments) to help with cashflow

49 29/1/2009 Thank you for your time Zurich Assurance Ltd, authorised and regulated by the Financial Services Authority, for its life assurance, pension and investment products. Registered in England and Wales under company number Registered Office: UK Life Centre, Station Road, Swindon, SN1 1EL. Telephone – Zurich Intermediary Group Ltd, authorised and regulated by the Financial Services Authority. Registered in England and Wales under company number Registered Office: UK Life Centre, Station Road, Swindon SN1 1EL. Telephone We may record or monitor calls to improve our service.