Zein Al-Bader:

Hello, and welcome to the latest episode of the Huntswood Podcast. If you've joined us previously, you'll know my name is Zein Al-Bader, and I'm the Director of Insurance and Wealth here at Huntswood. Following on from my previous conversation with Baroness Ros Altmann, we're going to be continuing our focus on the pension sector, or more specifically the most recent policy updates from the FCA regarding defined benefit pension transfers. I'm pleased to say joining us today are Paul Dyer, Huntswood's Head of Regulatory Risk and Assurance and Andy Sutherland, Huntswood Advisor and SMA of Conduct Culture and Regulatory Strategy. Andy, Paul, I wanted to focus the conversation today on DB pension transfers because it's clearly a big focus for the regulator. In order to get a clear view on our current situation, I think it's always useful to understand the route we've taken to get here. Paul, if I can start with you, as an industry, how have we arrived at the current situation that we're in?

Paul Dyer:

Yeah, a great question to start with, Zein. This is definitely an interesting time. I think it continues to be an interesting time for the pension sector. If you go back, really, about 100 years ago, the Old Age Pensions Act was established and I think almost exactly 100 years ago, in fact, pension relief was introduced, meaning it was more tax efficient. Scoot forward a few years and there were very limited developments, really, from 1988 when the Personal Pension Scheme came in. It wasn't until the last 15 years that things erupted into a hive of activity. I think that we take for granted now, A-Day, bringing in pension simplification, 2015 bringing in pension freedoms and tax free cash. I think now there aren't many people who aren't aware of what your pension is there to do and the difference it can make in your retirement.

    Alongside that has been a wealth of regulation, really, trying to make it ever better. I think the most recent publication from the FCA targets that we actually have more to do in that space. The device isn't quite delivering the outcomes it should. Some of the practices that are in place at the moment could be better. Maybe there's some redress, too, for the population at large. There's definitely an issue there in pensions at the moment. This is, I think, more of a market refining, if anything. We're trying to get to that place where, really, pension freedoms are delivering what they should. What do you think, Andy?

Andy Sutherland:

Yeah, I would agree with that, Paul. I think there's a couple of bits, for me, that sit economically at the macro level on here. I think since the Tories came in at the end of the '70s, we saw a couple of decades where there was a couple of fundamentals that they shifted. The first of those is we saw a lot more transients in the work place, so people weren't sticking around as long with their employers. That had an impact on retirement planning.

                Secondly, we also saw lower inflation and as a result of the lower inflation, we saw cheaper debts and adjusted returns as well in the equity market. As a result, there's been quite a significant shift. I think you're right, Paul. There's been a very low volatility in terms of policy change for such a long time and then we've seen quite a sharp uptick.

                Now for me, there was one other event in there as well, which I think plays a material part, which has been around RDR. RDR did something to the advice market which compressed the advice market, which meant that people were no longer getting as easy access to financial advice as well. I think what affects what we're talking about is a perfect storm. With all these things happening, you've got the consumers now very much in the consumer mode, so cheap money, now access to potentially to capital on the back of the pension freedoms, financial advisors maybe losing some of their craft on the back of RDR, so they're not have to sing as hard for their supper and I think all these things converging together and then aligning to what effectively is a policy divergence, I think, between the UK Government with the pension freedoms and then the UK Financial Conduct Regulator in terms of consumer protection. I think that's really what we're feeling now with all these different tensions across the market.

Paul Dyer:

Really, as a consumer, you have more options than ever before, whether you're talking about access to markets, access to technology. We're more enabled than we've ever been arguably, and you can see the shifts that have gone on in advice and pensions in line for that. These decisions, as you're heading towards retirement, even trying to work out what it is you want to achieve, making sure you've got the right level of funds put to one side that are being managed in the right way with the appropriate protections in there, this is really a decision full of complexity, and you can argue, information symmetry because one way or another, you're thinking about things you possibly have never had to think about before, and it's complex. As we've seen, I think there is the potential for conflict of interest anywhere where you buy a service, fundamentally, all of which could complicate the delivery of what is a right outcome. We could probably debate, if we have to, Andy, forever as to what the right outcome is and how that can change from day to day based on circumstances that no one can predict. It's really an area of complexity, isn't it?

Andy Sutherland:

It is, and I don't think that the multi layers, the nuances that you often talk about, Paul, as well. I think one of the ones on here is you've seen a shift in the mindsets, culturally, amongst the consumer away from probably my parents’ generation where it was much more about saving, into now look at my daughter, in fact look at myself and my daughter and think much more about consumerism, so this is now about spending. So we've all just shifted our patterns, and behaviourally, we're very different. I think as a result of that, we're not really taking the time to slow down and read as much as we need to read. So not only is there less formal advice available to us, but we're spending differently and our attention span has diminished somewhat as well, so our propensity to want to sit down and read small print is a lot lower than it would have been maybe 15 or 20 years ago.

Paul Dyer:

And that, as you mentioned, seems to be compounded then by the FCA research that indicates that advisors aren't, arguably, doing enough to provide consumers with the advice that they need. I think it was something like only 60% of the advice that they looked at had a clear supporting rationale and evidence, with about 28% having information gaps. There's clearly, as well as the complexity, something there isn't it? You mentioned the word craft before for financial advice, there's something here around then making sure that A. the advice that you give these consumers, or have been giving, particularly where they've been giving out, like the fine benefit scheme, gives them what they want. Then secondly, is really evidence. And I guess that's what the FCA is finding seemingly time and time again at the moment, is that we're not quite hitting the mark they expect.

Andy Sutherland:

What's interesting Zein as well, because I think you referred to retirement outcomes more broadly, and I think what we've just seen in the DB space is a key contributing factor to those retirement outcomes, in the sense that a lot of people are taking those benefits away from a defined environment in terms of the benefit, and moving them to something more cash based. Now, the retirement outcomes, and the flexibility of those outcomes, is by far the most significant driver. So whether they're taking those benefits immediately, or looking to access their capital from that defined benefit, in order to then plan for taking those benefits. That's a massive, massive shift, I think, in terms of financial responsibility, and it's not going to be right for everyone. I think this is the bit where FCA are concerned right now. There's a lot here I think we can do, I don't know, we'll probably cover that in a bit more detail now as we go through the conversation, but in essence, in answer to your question, lots has changed recently and certainly then that's quite significant when you look back historically as well. There's lots of converging views isn't there?

Zein Al-Bader:

Really interesting. And always useful I think to get a view on the more historic political and economic changes, as well as those more recent changes. But focusing more on behavior and conduct, the regulator has clearly made the decision to become more interventionalist. What's your view on the conduct of firms within the area of DB pensions advice?

Paul Dyer:

I think probably there's something around not letting the statistics do all the talking. Of course, the situation can look very bleak, we have to bear in mind there are thousands of firms involved in giving this advice and in a great many number of cases, the advice is suitable and appropriate. We're really talking about those cases, and we're focusing and trying to refine to make it even better, I guess, in all cases. I think where I start from, Zein, is a place where it's trying to put it into context, trying to think about what this, for firms, what can this mean in terms of improving, every improving, the outcomes that they deliver, taking heed of what's being given to them, and thinking about what needs to be done here retroactively, and also proactively moving forwards. What do you think Andy?

Andy Sutherland:

Yeah, I'd agree. I think that the conduct of firms is really interesting within the consultation and also the policy statement. FCA made it very clear that the majority of issues that they're finding are by firms that are well intentioned. This isn't a bit like the SIB review 20 years ago, the original pension transfer review, when arguably it was very transactional, people were just doing this for the sake of a little commission. I think what FCA are trying to call out right now is what they're seeing, is firms that don't realize they're not doing it properly. I was really interested to Baroness Altman's comment about clarity from the regulator. And it's something you hear from the political class, I think, about the role the FCA is playing in terms of defining what good looks like. Now I can understand why they'd say that, but I think we've all been doing this long enough now that we know what good looks like.

                I think the conduct here is one of, I think maybe that conflict that Paul mentioned before, so where firms have moved on to a asset based business model, so they're only going to get paid when the assets sit on their platform, I think has brought a conflict of interest in a lot of firms who maybe don't face into maybe as hard as they should. I think, unfortunately, this is where the FCA have taken the view of the contingent charging ban. If it was, it wasn't necessarily evidence based, I think conceptually they just struggled to get beyond the concept here, that if this really is a professional service, how you can still have a conflict as prevalent as that in the process. Now whilst I don't agree, necessarily, that the contingent, charging is the mother of all the issues, I think in some ways it's going to help manage the conflicts. I think the challenge is going to be for a lot of these firms now is what it means for the other part of their business. So to do this in one half of their business now I think has got re-across to the other parts, which I'm going to touch on as we go forward as well.

Paul Dyer:

I think that's spot on Andy, it's the charging structures aren't at the root cause of all issues here. It was interesting with Ros Altmann bringing up the piece around, saying many firms had complained saying they weren't sure what bringing compliance really looks like. I think here, really, the fact is that for awhile the standard's been evolving, and it's moving away from process to much more on outcomes and being able to evidence that things are being directed in that right way to deliver the right outcome. Which then compounded by the fact that in many cases, the record keeping seems to be an issue. Just shows we've got a bit more to do really.

Zein Al-Bader:

So my next question would be, what's the implication for firms? Paul you mentioned looking back retroactively, but also taking a more proactive approach. What specific activities should firms therefore be undertaking?

Paul Dyer:

First and foremost, there's understanding what your exposure is in this regard, one way or another. There's something there around making sure whether there have been failings in the past, and to make sure you identify and address those as quickly as you can really in your customers interest, your clients interest, one way or another. There's something around understanding broader exposure and where you've got material information gaps or areas that you need to fill in. And I think that involves client, customer contact. That involves reconfirming what the advice is in place for and just reaffirming that it's suitable. And then I think there's something around future proofing, your future business model and practices. Be that charging structures, ways of gathering evidence, making sure your advisors have the oversight there in place, is consistently focused on the right outcome. It's distinctly the look to the past, make sure you're doing it right now, and then future proof for tomorrow. What do you think Andy?

Andy Sutherland:

Yeah, I agree Paul. I think that the two points I'd probably point out that would help support that, for me one of the key areas I was waiting for to come out from the thematic review of the suitability of the DB advice, was what FCA was going to call those unclear cases. For a long time now, we're used to picking up files and saying there's just not enough on here to satisfy the auditor test, by the auditor test I mean can the auditor read all the words on a piece of paper and feel comfortable they can see the whole picture. I think that model where we try to rely on that is broken, to be honest, because FCA know it, we know it, you're not generally going to get to more than two thirds of the files where you can see and prove that auditor test.

                Interestingly, DB transfers are the one area where the conduct of business rules state that unless you evidence it to be suitable, it remains unsuitable. So technically, FCA could have taken a hard policy stance on this and called those material information gaps unsuitable. They stopped short of doing that, which I think was a really interesting point for us to think about. They also, in the policy statement, I think the consultation process, appear to be questioning the value of the ongoing service. I think that surprised quite a few people as well. For a long time we thought that's clearly a valuable service, especially if you're transferring. But I think there's an opportunity to take both of those Paul, in terms of when we look forward. There's an opportunity right now to weave in and address those material information gaps in the ongoing service and bring and demonstrate the value.

                I think you should take two points out of there to really then cement the point that Paul's saying, which is take the opportunity now to understand where the gaps are. Do it proactively, stay on the front foot, drive the agenda. And then use that then to wrap around your ongoing dialogue with your own customers to make sure they understand and know the risk of the transfer.

Paul Dyer:

And there within for those firms who are bold to actually reinforce the business they're taking, to make sure actually it's done in the right way, I think there's a real opportunity. We've already seen a lot of aggregation and consolidation in the financial advice space over the last 10 to 12 years. As Andy mentioned, I think in part a lot of that coincides with RDR, one way or another, driven by parts of it. I think this is just another opportunity to further refine what you're doing.

                It's interesting that the raft of measures that were introduced also included some that were very consumer focused in terms of the British Steel Pension scheme, as well as an advice checkup. Looking at the advice check up, there's some interesting learnings in there. They pick out a number of failure points, as they see it, in the advice process. These are the real basics that get, they're constructed in such a way as to give the consumer a way of knowing as to whether it was appropriate or not. But equally, at the same time, could be used as guidance for those firms who are unsure exactly what they should be looking for in the first instance.

                I think, Andy I'll be honest, I think the way in which the FCA continues to take that step closer to the consumer is really a change from 10 to 15 years ago.

Andy Sutherland:

Absolutely. Absolutely. And I think 20 years ago they came to the industry to fix the problem. I think this time now they're trying to raise awareness, then also empower consumers to take appropriate action themselves. You heard Andrew Bailey, before he moved on, talk an awful lot about the FCA mission. And when they started talking about consumer protection there was a big focus on protecting those consumers who need it most. I think there's a working assumption at policy level that if you take advice you have regulatory protection. I think the behavioral challenge is a lot of people are just inert, just don't take the initiative themselves to really question.

                 So I think there's a fair amount of sleep walking going on right now, between the advisor and the client through some of these advise processes. But I just want to come back, Paul, as well because you made a point about consolidation, and I think for the average IFA firm there's multiple layers of information. There's the back office system that will be very transactional by nature, I know we're starting to see a shift now where non-advice, or where you advise not to do something but you're still receiving advice, is beginning to be captured.

                But a lot of processes and order systems are predicated and built on transactions actually occurring. So this has been a challenge, I think historically for firms, and one that needs a fix going forward. But also recognizing blind spots and dark pools on the business going backwards. Now this is amplified and exacerbated where you've been buying up businesses. So if you bought up a number of business, and the model, you understand this through strategic model pool, which is, it's a asset play. So you're looking to have these assets and once you have these assets if you're able then to have a proposition where it's favorable for them to switch onto, then you start taking the assets revenue.

                There's a difference now post RDR in terms of the strategic ambition. And I think also in terms of the business model as well. I think for the first time, I think after 2012, certainly in my experience, financial advice became profitable again. There's a question there about the margins, whether the margins are as significant as they possibly could be, but it became profitable again for the first time in a long time. Now if you have been buying up all those back books, then you've got multiple issues, I think, in terms of what you don't know. So this is now the opportunity, I think, to reach back in, shine their lights, and particularly when you have exercises like the FCA now just come back out for a further data request to top up the information request they made back in 2018. So I think we would advocate right now, if you are going to go back and look at files and answer that data request, then think about what else you might see and collate on those files as well.

Paul Dyer:

So I guess this is the piece where with those assets you have some potential liabilities, and with what we're looking at here, you're assessment of a liability might be slightly different than what it was five, seven year ago, right? I think that's also, just building on what you're saying Andy, it's clear the FCA's now on the pitch. So successively, we've seen a number of pieces of work in this space pushing and pushing, and now it seems to me they're on the pitch one way or another and the scrutiny is increasing. They're continuing to gather data from a certain number of providers around what they've done previously. You've got up coming work around the assessing of suitability to cumulation advise, I think this review's planned in relation to follow up in terms of RDR and financial advice market review evaluation.

                This is a space that isn't going to go away. I think now in fact, now the FCA's laid it out there, I think actually they've put themselves on the hook one way or another for following up. So anything firms can do to basically understand the exposure they've got and try and get on the front foot one way or another, so they can evidence they're doing the right thing in all cases and they know they've got that future proof business model. I think one of the challenges there also is, we talked about liability, is around the professional indemnity insurance providers, because I think that's an interesting dimension that comes in now, which is that if it wasn't tight before, the market's possibly going to get a bit tougher one way or another. Do you have a view on that Andy?

Andy Sutherland:

I do. Just to come to the PI, just wanted to make a point there Paul, you're saying about the FCA agenda, because one of the things that really struck me was the fact that before they announced the permanent CEO, they were obviously fighting Covid-19 as well, it would have been very easy to kicked the DB stuff into the longer grass and come back in the latter half of this year. Not only did they not do that, but during the time of interimacy, they published multiple papers. This was a real, in terms of it's approach, was unprecedented, I think, in terms of just breadth. And the resonance of how that landed in the market place as well.

                So I think for firms, take note of that. I think also understand there's a lot of political tail wind here as well. If you think on the back of auto enrollments, you've now got 20 million people in the U.K. who are pension savers, now not all of them will have the protection of the FCA, a number of those will be subject to the pension regulator in terms of the protection, and it's a very different game as well. So FCA is working together and being, I think, challenged by the government to make sure that this significant potential for harm is being properly monitored and addressed.

                So that's why I don't think it's going away any time soon, Paul, which point back on to the PI point, as a result of that, as a result to the scrutiny, PI shares, has just walked away from this market right now, because not only is there a higher chance of claim when all this is happening, but the cost individually of these plaintive as well is significant. And we're seeing now, year on year, where the actuarial evaluation of these benefits, these DB benefits, just keep going up exponentially, so once you come outside of that environment there's a risk here that factors beyond just pure investment returns move away from you. And I think now that the risk appetite of a lot of the PI insurers is going to diminish completely unless something fundamentally is done differently. And that could be a situation where firms have a better understanding of the liabilities on their book. I think if they're able to present those to PI insurers and try to influence them and make better, omer informed decisions, I think that would help.

Paul Dyer:

We've also had the SNCR introduction right? So if you think about those developments over time, if anything the ante is growing as well on those individuals who are found not to be taking the right actions. And I'm sure with this latest round of guidance and rules, that one way or another the audience is getting more and more senior as the liabilities starts to hit at the heart of bold decision making.

Andy Sutherland:

And Paul, it's really interesting, you see a lot of firms now say things, take blanket policy decisions. They'll say well we don't do insistent customer, or we don't do DB business anymore. Now that doesn't feel like that's the right outcome for the business, or eventually, the end consumer. So right now, as a consumer, why can't I exercise my pension freedoms by transferring my pension, unless it's the law I have to take advice? The trustees won't give me that money unless I've got something saying I've taken advice from a FCA authorized firm. So at that point there, to just say we don't do DB business doesn't feel right because the law states that they need to have access to advice. I think also for businesses who say we just don't do insistent client business, doesn't feel right either, because there will be times when clients need to make decision which aren't purely financial and that's okay as well.

                The job of the financial advisor is to give financial advice, so as long as they're being seen to give the advice which puts the customer in the best financial position, I think you have to expect an exceptional and a robust process, but an exceptional process for allowing clients to take action and responsibility themselves. I think the problem we've seen in the past is that we as an industry have not policed that very well. It's being used as a circumvention, I feel like, to policy and process. And as a result now I think it's no longer served the business or the consumer. So I think there's a lot in there for firms to look at this and just think about the risk they're taking on. I think it's important to say though Paul, I think there's still a really good market out there, the DB market. I think with pension freedoms, and I think with well structured, well governed firms, with a good value proposition, I think there's still lots of consumers out there who still will benefit from transferring their defined benefits out of their employers pension scheme.

Zein Al-Bader:

And in fact this might be some of the most valuable advice you ever receive.

Paul Dyer:

Yep. It's also a significant wealth creation event. We an awful lot about wealth management, not enough firms talk about wealth creation and helping individuals and their families take a step up the wealth ladder.

Zein Al-Bader:

To continue that focus on consumers, we've spoken about increased scrutiny from the regulator, and the fact that they are now on the pitch, and that there's political head wind, I think as you described it Andy. If you then add in the fact that we've seen news stories of bad practice which have hit the headlines, I'm thinking the British Steel Pension scheme. I know the FCA have created an advice checker, but more broadly, what should consumers be doing right now if they've been through a DB pension transfer process?

Paul Dyer:

I think most consumers should be, if they've received advice in relation to their DB transfers, if they've affected a transfer, they should be looking at the material provided by the regulator and just thinking through whether what they received was appropriate. I think probably, at a more base level, this gives them more empowerment to challenge those who advised them, I'm not sure necessarily in every case. You're going to have some opportunistic people, I guess, who are looking to jump onto a bandwagon, they want to turn this into something. They see claims management firms who have taken opportunities like this and then breech the hole one way or another. I'd hope it means easier access to better advice ultimately.

                I think for consumers this gives them some tools to challenge the information of symmetry, and I hope this leads to some redress for those who deserve it, and I think most firms will be looking to give that. I just am slightly worried that it may tip the balance unfairly. I think redress is typically given as a financial amount, it doesn't necessarily put you in the position that you would have been in, meaning that there's an opportunity for some to take advantage. But the ball seems to be placed more and more in the consumers court.

Andy Sutherland:

Yeah. And I think for me, Zein, I think there's two types of consumer here. There's the ones who have the financial capability, that have the financial resources. So really what we're talking about, in order to avail yourself and benefit from these fundamentally, they're sweeping changes that we saw, the Pension Freedoms, and the ability now that that offers people to not only have control over their own retirement and future, but they're going to pass that down generations now. When you see the uber rich and the wealthy, they talk about family office because what happens is they pass the money down generations. This is an opportunity for many, many more people, I was going to say the average man in the street but perhaps not, but just for many more people in society, to have an opportunity to pass down wealth. I think there's lots of positives here, but I don't think you can sleep walk your way through this. This is something you need to be, you're at the wheel, you can't fall asleep at the wheel.

                 I would urge consumers to really probe and understand what they've done. And I think in the majority of cases that we see, I think broadly they all have something that looks to be consistent with their profile, but maybe they haven't been fully appraised of all the risks and all they underlying assumptions and dependencies that they need to understand in order to protect themselves for the future. Because ultimately the harm we're talking about here is about sustainability of that money. This money is meant to see you into retirement and over the perpetuity line.

                So if you're not aware of all the factors that you need to be in order to make sure that is sustainable, then I think it's shame on us as an industry. But if you are aware, and actually then you make decisions, poor decisions, then that should be shame on you. So I think there's some consumer responsibility here as well, but I think there's an awful lot more that we've got to do as an industry before we can put that responsibility on to those individuals. And just to be clear, it's only on those who are capable of taking on that responsibility.

                So as Paul says, redress absolutely where it's due. If people have not been advised properly then I think it is absolutely incumbent on us as an industry to quickly repatriate them and put them in the best position we possibly can.

Paul Dyer:

I think a big part of that Andy has to be a focus on outcomes right? For anybody who's had a transfer, if you didn't have a discussion around the outcome you were trying to achieve then there's something fundamentally flawed in the advice in the first place. I think for most advisors I've worked with over time, the focus has pretty much always consistently been on that outcome. That is setting out the objectives for what you want to achieve is the basis of any of these relationships. So it does surprise me in some cases, when I look at what the FCA is feeding back, it's clearly in many cases, that isn't the case. And I think those are the ones who maybe are going to end up having to look for redress.

Andy Sutherland:

Yeah. And I think for me Paul, what we tend to see an awful lot of is the advisors have got so comfortable now with the concept of moving money out of DB and putting it onto a platform where it's being managed in line with the rest of the funds, that they're forgetting sometimes that actually heres and awful lot here they need to do to probe and challenge, and that's the bit that's missing right now. That's the read across for us all, that this isn't just related to DB transfers, this is related more generally across the piece right now. So financial advice I think is a diminishing art, I think an awful lot more needs to be done now on the part of the advisor to really challenge a client.

                If a client says to you I'm going to retire in 25,000 pounds, rather than going straight to whether the investment approach is appropriate to make that sustainable, what they should be thinking is well you're on 50,000 pounds now, why are you going to be able to live on half the money that you're currently earning? And really probe them and ask them about that, what you might find that actually 35 is the right number rather than 25. That might still be sustainable, but these are the kind of things that are in material information gaps on files. This is why I think it's really important for firms now to identify where they haven't done enough to probe and challenge and use the ongoing contact and engagement with those clients to really do it properly.

Paul Dyer:

It's interesting there that poor systems and controls can be as corrosive as bad conduct really in retrospect. So there's something around A. making sure those conversations were the right ones, perfectly as you described. And secondly, making sure you've got the processes in place to be able to capture that information and evidence it, which is almost the fading number two. Right? The base failing, where actually it was suitable, it did focus on the right things, but one way or another you can't prove it.

Andy Sutherland:

I think it's important Paul, as well, just to say ultimately I think what we're saying here is everyone's interest can be managed, the client can get what they want, they can have the freedom, the flexibility. The advisor can move these assets safely on to their centralized investment proposition and make money. You don't need to make excuses for that. There's also the regulator here as well, could be satisfied that when done properly there is a reduced risk of consumer harm. The PI insurers can take satisfaction in actually, oh they really are insuring, it's just the normal risk of errors, omissions, negligent failings that would happen in any normal other area.

                I think we can get to a point, I don't think we're a million miles away, I just think there's a couple of fundamentals that need to be changed to underpin all of this. But then I think we can get to a place where all the stakeholders can have their interests managed.

Paul Dyer:

The proactive play has to be the smart move, one way or another. Securing good outcomes whilst it's under your control, looking at what's there and making sure you're fully aware of what the situation is. I think, would you agree Andy, that one of the worst things you can do is just walk into this blind. The first step is all about knowing actually what's on your book, what's there, are things working as they should. Look at incentive, oversight, capabilities, informational symmetry, record keeping, and just make sure you're operating in the way that you really want to.

Andy Sutherland:

100% Paul. I've spent 20 years working on past business reviews and big, large regulatory review projects. The last thing you want to do is have someone come and dictate to you how the process is going to work. This is about you understanding who your clients are, what you're offering is, and making sure you're doing all you can to align those interests. So proactive, proactive, proactive. Absolutely.

Zein Al-Bader:

So we've talked about collectively we need to take more responsibility, that's from a firm perspective, a consumer perspective, and a regulatory perspective. And we know there's lots of good practice but also pockets of bad practice. My final question is where do we go from here? And if people were to take anything from this conversation that we just had, what should it be?

Paul Dyer:

It's a great question, Zein. I think number one, I'll repeat the proactive play is the smart move here. As Andy highlighted, the fact is the regulators move in this instance, at a time when there are lots of other things going on, internal changes, external changes, and uncertainty, actually shows that there is a real commitment to making this better from a regulatory standpoint. So that means that the scrutiny is going to increase, that means actually some of the firms that don't meet the standard at the moment are going to be held to account. The proactive play has to be the smart move. That's looking at, not just the business on your books, but also systems and controls.

                I also think there's something in here around getting everybody involved. This isn't just a compliance problem, this isn't just an advice or financial planning problem, this involves everybody in your business if you're an advice firm. Align the liabilities with the board ultimately. So I think it requires everybody sitting down and objectively thinking about what you need to do as a business, not just left to any one particular area.

Andy Sutherland:

Yeah, and I think for me it comes down to product governance. It really does. If you're thinking about the future of regulation, and with [Hearst 00:38:01] I think that already the indication is coming out from FCA about the future and post Brexit, and what that's going to mean, and the opportunity for us. But if you're looking forward, you need to understand what's going on. And I think the point we talked about, the relationship between RDR, what that's done together with the pension freedoms. Now there's a common issue here that needs to be addressed, that issue I think is best served, and the conflicts of interest managed, through product governance.

                So if you think we've moved away from the days of complice with rules, and that's when we talked in terms of millimeters, in terms of getting the right side of the line. We started talking about outcomes and customer outcomes and conducts, and that's where perhaps we started talking in terms of feet. But we're now talking in terms of miles when we talk about culture. The idea of being a good conduct culture, is you make fair value products, you distribute them conflict free and transparently, to a defined target market. And you make sure you're well governed. And that's where the two pillars now, I think, of the future of regulation around accountability through the senior managers regime, then linked to value for money, which is around the product governance. That's the future, and I think if you start looking and addressing your business in that way and identify the underlying root cause of this which is that craft of advice, of making sure that you're always thinking about the common interest between you and your clients, that's got to be the way forward. And it also makes perfect commercial sense as well.

Zein Al-Bader:

Andy, Paul huge thank you for your time today. It's been great to get a detailed view on what is happening within the DB pension space and the advice sector at the moment. As well as giving that practical advice on what firms should be doing right now.

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