1. Should I stay or should I go now?
Part two of pension switching
For advisers only – Not for use with retail customers

2. Important information
This presentation is for adviser use only and not for retail customers, and contains some forward thinking statements which should not be taken as fact. Information given is based on our current understanding, as at April 2017, of current taxation, legislation and HMRC practice, all of which are liable to change and subject to an individual’s own circumstances. Terms and conditions of products are available on request. The level of charges may change in the future.
For webex presentations, the event may be recorded for training purposes.
No reproduction, copy, transmission or amendment of this presentation may be made without the written permission from Prudential.
PAC - Prudential" is a trading name of The Prudential Assurance Company Limited.
This name is also used by other companies within the Prudential Group. The Prudential Assurance Company Limited is registered in England and Wales. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number Prudential Retirement Income Limited is registered in Scotland. Registered office at Craigforth, Stirling FK9 4UE. Registered number SCO Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
This presentation contains past performance information which is not a reliable indicator of future performance. Investments are not guaranteed and can go down as well as up. Clients may not get back what they put in.
Any examples included are designed to represent a typical situation and are not related to any particular individual. They do not recommend that course of action.

3. Our learning objectives for the session
To be able to demonstrate an understanding of :
31st March 2017 and the great switching opportunity 1
Getting the best from best advice systems
Dotting the i’s and crossing the t’s 3
Recent FCA guidance on transfers and switching 2

4. What happened on 31st March 2017?
FCA introduces cap on early exit pension charges
The Financial Conduct Authority (FCA) has today announced its final rules on capping early exit charges for consumers eligible to access the government’s pension reforms from age 55.
From 31 March 2017, early exit charges will be capped at 1% of the value of existing contract-based personal pensions, including workplace personal pensions. Early exit charges that are currently set at less than 1% may not be increased. Firms will not be able to apply an early exit charge to personal pension contracts entered into after these rules take effect. 
Need to mention MVRS / MVAs etc
Sources: FCA

5. FCA introduces cap on early exit pension charges
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“People eligible for the Government’s pension reforms should feel able to access them as they wish. The 1% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”
Sources: FCA

6. How many clients have exit penalties?
The FCA investigation showed that nearly 700,000 (16%) of customers in contract based pension schemes face early exit penalties!
Number of customers
Exit charges before 31st March 2017
358,000
0 - 2%
165,000
2 - 5%
81,000
5 - 10%
66,000
10%
Source:
We are not responsible for contents/reliability of the website(s) shown.

7. SimplyBiz events Q4 2016
Brief summary of what was covered by Royal London in Q4 2016
To switch or not to switch – That is the question
Looked at the Thematic review 2008 and the positive compliance sessions from 2013
Drivers for why people do and don’t switch, analysis of WP funds and how to conduct it
Suitability reports, client aims & objectives for switching & transfers

8. Unclear = FOS likely to rule in favour of client
2012 Key Findings
Extra product costs without good reason
Loss of benefits without good reason
Recommended funds not suitable for client
Ongoing reviews not put in place
52% Suitable
48% Unsuitable
or Unclear
Unclear = FOS likely to rule in favour of client
Source FCA Positive Compliance workshops October 2013

9. Beginning – Understanding the Need Middle – Establish the Solution
The story of advice
Beginning – Understanding the Need
Middle – Establish the Solution
End – Presenting the Solution
Source FCA Positive Compliance workshops 2016/2017

10. The Beginning - Know your client information
Objectives
Individual needs
Term
Why Growth/Income – level, increasing, decreasing
Comments sections
Hard / Soft facts
Knowledge and Experience
Specific sections
Client reviews
Prioritisation
Suitability reports
Source FCA Positive Compliance workshops 2016/2017

11. The Middle - Selection process / research
Some considerations…..
Provider’s:
Reputation and financial standing
Investment style / approach / performance
Approach to investment selection / due diligence
Terms and conditions
Charges
Funds, tax wrappers and other products / flexibility
Asset classes
Functionality
Additional tools
Support services
Not exhaustive
Source FCA Positive Compliance workshops 2016/2017

12. The Middle - Selection process / research
Evidence – all providers considered?
Evidence – all products considered?
Centralised research?
Same product or provider used
reasonable explanation?
Existing product / product explored?
Some considerations…..
Provider’s:
Reputation and financial standing
Investment style / approach / performance
Approach to investment selection / due diligence
Terms and conditions
Charges
Funds, tax wrappers and other products / flexibility
Asset classes
Functionality
Additional tools
Support services
Not exhaustive
Source FCA Positive Compliance workshops 2016/2017

13. The End - Suitability reports
Client needs and objectives
Loss of benefits?
More expensive – why?
Why is advice suitable?
Provider choice – why?
Reference to documents
Client ATR & reconfirmation of
Risk descriptions
Client reviews
Comparison of old and new

14. File Checklist What is a ‘good’ file Advice process / file checklist
Disclosure
Key features illustration
Know your client – factfind?
Attitude to risk
Capacity for loss
Research
Suitability report
Client reviews
File Checklist
Source FCA Positive Compliance workshops 2016/2017

15. Client aims and objectives
Source: PruAdviser

16. Advising on Pension Transfers – FCA expectations January 2017
This alert highlights our requirements
when you provide advice on pension transfers,
including advice in particular circumstances
FCA
FCA ‘concerned’ over IFAs DB transfer processes
New Model Adviser
Advisers back FCA pension transfer
guidance on critical yields and insistent clients
Money Marketing

17. Advising on transfers - FCA Expectations
Investments
Concerns regarding funds/investments
Need to consider likely returns/risks/charges
Critical yields
Not just a ‘hurdle rate’
Client circumstances/’specific factors’
Permissions
Care re responsibilities
Liaise re investment suitability
Insistent clients
‘Three step’ process
Suitable advice/risks/document actions
Sbiz issued a publication on this – Mark will send over.
Other Aspects
Overseas transfers/Pension scams
Source FCA Update Jan 2017

18. FCA Advising on pension transfers – January 2017 expectations
Advice on pension switches Where advice is provided and the advice is either to proceed or not to proceed with a proposed switch, taking into account the client’s personal circumstances, the firm is making a personal recommendation. The firm will need to comply with our requirements regarding the suitability of the advice provided, as noted above. Where the firm recommends a pension scheme knowing that the client will switch from a current pension arrangement to release funds to invest through the scheme, then the suitability of the assets in which the client’s funds will be invested must form part of the advice given to the client.
Source:

19. Product Selection Tools

20. An example of good practice What the FSA said about comparing costs
The firm set out a section in its template suitability report outlining any switch penalties on the ceding scheme and clearly explained the impact of charges of the switch. They did this by comparing the reduction in yield (RIY) figures for the ceding and new scheme (they used a software system to calculate the RIY of the ceding scheme).
Source FSA switch review 2008

21. Product Selection Tools – case study
Hugh age 50
Pension switch
SRA 60
£ 100,000
Default funds
No advice charges
O&M Pensions Profiler & Selecta pension
This example represents a typical situation
It is not related to any particular individual
It does not recommend that course of action

22. “League Tables” using Default Funds
“But I can’t use you, you’re not in first place!”
Provider
System 1
Provider rank
Projected fund
System 2
Projected Fund A
1st
£ 156,000 B
2nd C
3rd D
4th E
5th F
6th G
7th H
8th I
9th
£ 155,000 J
10th
7th £156,000
10th £152,000
3rd £156,000
“My compliance says I have to use top three companies only!”
11th £155,000
6th £156,000
4th £156,000
“What has this analysis really achieved?”
5th £157,000
13th
N/A
9th £155,000
Source: Selectapension & O&M created 10/01/2017 – Male age 50 £100,000 FV 10yrs to SRA, Default settings and no advice charges, Personal Pensions selected
We are not responsible for contents/reliability of the website(s) shown.

23. What the FSA said about comparing costs FSA Switch review
Some examples to think about…
Poor Practice
The firm included a table in its suitability reports setting out and comparing the projected retirement fund value from the ceding scheme and the new scheme. These typically showed that the new scheme had lower charges. The advisers indicated that the new scheme involved lower costs and therefore this formed part of the reason for switching.
However, the projection of the new scheme was often on the basis of 100% investment in a cash fund (which had no charges) where the fund was to be managed by a discretionary fund manager. The projections left out the cost of the discretionary management service and any underlying funds. Therefore the comparative table and advice were misleading
Source: FSA Switch review 2008

24. External portfolio £100,000 case study
CF Woodford equity income
M&G Episode income
Threadneedle equity & bond
Artemis global income
25% holding in each
This example represents a typical situation
It is not related to any particular individual
It does not recommend that course of action
Source: Selecta Pension
We are not responsible for contents/reliability of the website(s) shown.

25. Software system 1 – Portfolio v Default
Provider
Portfolio Rank
Default Rank A
1st B
2nd C
3rd D
4th E
5th F
6th G
7th H
8th I
9th
N/A
2nd
N/A
N/A
32nd
5th
29th
N/A
N/A
Male age 50, SRA 60, £100,000 transfer, Selecta Pension, and O&M PP & Hybrid SIPP 4 fund external portfolio, (M&G, Woodford, Artemis & Threadneedle)
We are not responsible for contents/reliability of the website(s) shown.

26. Default vs Portfolio Software System 1 Software System 2 Provider
Default Rank
Portfolio Rank A
1st B
2nd C
3rd D
4th E
5th F
6th G
7th H
8th I
9th
Provider
Default Rank
Portfolio Rank A
1st B
2nd C
3rd D
4th E
5th F
6th G
7th H
8th I
9th
N/A
1st
2nd
N/A
11th
N/A
N/A
N/A
6th
11th
N/A
15th
N/A
N/A
N/A
2nd
N/A
N/A
Male age 50, SRA 60, £100,000 transfer, Selecta Pension and O&M/. , PP & Hybrid SIPP 4 fund external portfolio, (M&G, Woodford, Artemis & Threadneedle)
We are not responsible for contents/reliability of the website(s) shown.

27. Screenshot of the Portfolio Table
58 products available (originally was 128)
Male age 50, SRA 60, £100,000 transfer, Selecta Pension, PP & Hybrid SIPP
4 fund external portfolio, (M&G, Woodford, Artemis & Threadneedle)
We are not responsible for contents/reliability of the website(s) shown.
Source: Selecta Pension

28. What comes first funds or filters
What comes first funds or filters? Provider multi asset fund £100,000 case study
Client age 50
Recommendation for multi asset fund
Online submission
Requires flexible access
Hugh requires phased drawdown options
Expresses concerns for high financial strength ?
This example represents a typical situation
It is not related to any particular individual
It does not recommend that course of action

29. Prudential Dynamic Focus 40 – 80 Portfolio

30. Provider multi asset fund
52 products available (originally was 128)
Male age 50, SRA 60, £100,000 transfer, Selecta Pension,
PP and Hybrid SIPP
Prudential Dynamic Focus Fund 40% - 80%
We are not responsible for contents/reliability of the website(s) shown.

31. Provider multi asset fund
31 products available (originally was 128)
UFPLS and Flexi access available,
Online submission,
Phased drawdown option,
No filter for financial strength
Male age 50, SRA 60, £100,000 transfer, Selecta Pension
Prudential Dynamic Focus Fund 40% - 80%
Plus filters
We are not responsible for contents/reliability of the website(s) shown.

32. Should Hugh decide on a ‘smoothed’ return & product filters
Source: Selecta Pension 12/01/2017
We are not responsible for contents/reliability of the website(s) shown.

33. Justifying a switch to a more expensive plan
Why is the old plan no longer suitable?
Better fund performance
Why should this be expected in the new product?
What alternatives were available in the old product? Why were they discounted?
Product features not available
How do they link in to the client’s objectives?
Consolidation to a single plan
Do the benefits of efficiency outweigh the additional costs?
Capacity for loss
Does the benefit of guarantees outweigh the additional costs?
Concerned about the effect of investments becoming unbalanced?
Source: FCA Positive Compliance workshops 2014

34. Quality investment governance
Cost vs Value
Quality service
Flexible access
Guarantees
Specific assets
3.10 Additional costs may be justifiable where they are associated with a specific benefit that is valued by the client
Death benefits
Quality investment governance
Predictability
Non FP
As I mentioned earlier The FCA does not recommend you must always switch to a cheaper plan.
There are many reasons why the extra cost is worth paying.
The adviser just has to justify it.
I’d like to bring you up to speed with the latest findings from the regulator….
Quality service, Guarantees, Multi- Asset funds (read all bubbles on the slides) etc
Discuss the FSA’s final guidance on assessing suitability (April 2012) :
“Where additional costs apply, firms must judge whether they are suitable in light of the needs and objectives of the client. Additional costs may be justifiable where they are associated with a specific benefit that is valued by the client. Firms should disclose any difference in the cost in a way that is fair, clear and not misleading.”
Smoothing
Source: FSA Finalised Guidance. Assessing Suitability. Replacement Business and Centralised Investment Propositions April 2012

35. Another common misconception - RU64
“I can’t use you. RU64 rules still apply and you’re more expensive than stakeholder!”
Remember – it’s costs without good reason…
Does Stakeholder offer …..?
Guarantees?
Drawdown and/or flexible access?
Smoothed returns?
Financial strength?
Multi asset or wide investment choice?
Flexible death benefits?
And as for RIY …. OAC?

36. Adviser Charging Old PP New PP Old PP Ongoing service Old PP
‘A client should be able to make an informed decision about whether they wish to take up or cancel a firm’s ongoing service’. TR13/5
Old PP
New PP
Old PP
Ongoing service
Old PP
Ongoing Adviser Charge
What, when & how much?
Review + Research + Switch
Initial adviser charge

37. Pension Switching – SimplyBiz
held on the Vision website – reports and checklist all held here.
Most of them will be aware of Keely – head of pensions technical – most advisers spoke to her at some stage.

38. Prudential Retirement Modeller
Reference to other providers
General Assumptions
Growth rate is 6.2% - PruFund Growth
Adviser charging: 3% initial + 0.5% OAC
Source: Prudential Retirement Modeller
For Adviser Use Only - Not Approved For Use With Clients

39. Introducing the Prudential Retirement Account
Simple & efficient process
Adviser charging options
Manage plans securely online
A single account
Freedom & choice flexibility
Access to guarantees
Death benefits
Manage business book online
Phased Retirement
Extensive investment options
Adviser Model Portfolios
Range of reports

40. Summary Switching can be extremely useful for the right client
Filter & Funds to narrow use systems more effectively
Highly Personalise Suitability Reports
Consider ATR & C4L
Failure to confirm Client Objectives
Unclear Advice
31st March 1% exit fee cap opportunity
Original Thematic reviews still relevant
Help Client make an Informed Decision
Consider all other Options

41. Support
Source:

42. Our learning objectives for the session
To be able to demonstrate an understanding of :
31st March 2017 and the great switching opportunity 1
Getting the best from best advice systems
Dotting the i’s and crossing the t’s 3
Recent FCA guidance on transfers and switching 2

43. Thank you for your time speakernotes@prudential.co.uk
If you would like to give us feedback directly or request information not covered elsewhere please e mail us at
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