Reviewing Pensions FairlyBankhall Adviser ForumPresentation by Paul RutlandZurich Financial Services

For intermediary use only – not for use with your clients

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Compliance Update : March 2009

Background to the reviewScopeFindingsKey areas of concernYour actions

Compliance Update March 2009

Issued December 2008

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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

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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

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Five key elements

1. Charges

2. Funds

3. Lost benefits

4. Review

5. Documentation & evidence

2.1 Charges

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Charges – no industry standard way of analysis

Making a charges comparison – assessment

What if charges are more expensive - justification

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Poor Practice: Cost Comparisons

Source : FSA Thematic Review December 2008

Solution: C

harge comparis

on

on actual fu

nds, not c

heapest

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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 usedFund performance….. ……..………………but who knows that it will be better?Will be able to use drawdown facility…..but never gets usedConsolidation………………………………..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

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Good Practice: Cost Comparisons

Source : FSA Thematic Review December 2008

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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.

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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

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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

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Good Practice: Loss of Benefits

Source : FSA Thematic Review December 2008

Learning Point: If G

AR is

available, h

ow valuable is it?

2.3 Funds

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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

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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 service10 April 2005

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New funds - FSA view in detail

Consider attitude to risk and personal circumstances, and how the recommendation reflects them

Must also consider customer objectivesfinancial situationfinancial knowledgeExperiencetheir age (term)other relevant personal circumstancesincluding existing investments

Be aware of nature and level of risk of funds …..and benefits of diversity

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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

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Good Practice: Customer’s ATR and personal circumstances

Source : FSA Thematic Review December 2008

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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

ExistingPensionPlan

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Use Zurich Portfolio Planner with existing funds

NEED TO LOOK AT ANNUAL STATEMENT TO ENSURE RIGHT FUND!

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ZPP will compare it with model portfolio:

action needed?

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Re-forecasts based on fund selection

2.4 Review

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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

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Good practiceOne 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

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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

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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.

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3. One member’s perspective

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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 reasonsConsider carefully what you would do to ensure regulatory requirements are met if a pension switching report is not completed.

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Other documentation & evidence

Documented Company/firm proceduresSuitability Report and other compliance requirementsChecklist based on FSA templateRisk 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

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Reason’s to consider Zurich

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Financial strength

Ratings of Zurich Assurance Ltd as of July 2008In July 2008, Moody’s confirmed the upgraded rating they had given Zurich Assurance Ltd in 2007. 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

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Panel of 177 pension funds from 34 fund managersWide 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

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Bankhall members offer

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Helping you at every stage - marketing support

Keep your options openHelps customer prepare for pre-retirement review

meeting

For the Customer

Transferring your pension – need to knowHelps 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

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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 notesHelp with a pension review

PPF PresenterZurich branded version of what Sterling have

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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 www.zurich4pensions .co.uk

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Summary

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Threat or Opportunity?

Potential market still huge We now know what ‘good’ looks likeFSA ‘file review template’ available as guidancePortfolio reviews essential given current market conditionsWith-profit funds need reviewing in line with FSA Sector BriefingNeed consistent & robust processesReview stresses putting the customer ‘needs’ at the heart of processDocumentation and evidence!

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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 www.bankhallonline.com

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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

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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 02456671. Registered Office: UK Life Centre, Station Road,Swindon, SN1 1EL. Telephone – 0845 850 8898. Zurich Intermediary Group Ltd, authorised and regulated by the Financial ServicesAuthority. Registered in England and Wales under company number 01909111. Registered Office: UK Life Centre, Station Road,Swindon SN1 1EL. Telephone - 0500 546 546. We may record or monitor calls to improve our service.