It’s an old adage that the best time to face up to a problem was yesterday, but the second-best time is now. And that’s a message that the 5,000 or so UK-based IFA firms should heed, given the latest rumblings from the ongoing British Steel Pension Scheme (BSPS) fall-out.

For those unfamiliar with the BSPS saga, the UK Pensions Regulator approved a deal to split the scheme from its former parent, Tata Steel UK, back in September 2017. In return, the BSPS received £550m of funding from Tata Steel, alongside a 33% equity stake in Tata Steel UK. Individual information packs were subsequently sent to some 125,000 members, which gave members a number of choices of what to do with their pensions. And that’s when the troubles – for some – began.

Approximately 7,700 BSPS members have transferred a collective £2.8bn out of the pension scheme, but some members have faced significant losses as a result of what has been deemed “unsuitable” advice. Back in December 2021, the Financial Conduct Authority (FCA) began its own process of consultation for a redress scheme for members of the BSPS. This is focussed on the transfer advice given to BSPS members from March 2017 to March 2018. Firms are being asked to review their advice and – if it is found to have been unsuitable – to provide compensation.

Whilst we still await the outcome of the consultation, the National Audit Office (NAO) reported separately on 18 March 2022 that 263 pension scheme members had lost out on £18m of redress, as the result of IFA firms entering liquidation and the limits on the current compensation being provided. This equates to an average individual loss under the Financial Services Compensation Scheme (FSCS) of over £80,000. But perhaps the most troubling finding of the NAO is their estimate that almost half (47%) of the advice given was “unsuitable”.

So what should IFAs be doing now to ensure that they are putting their best foot forward?

Well, just as IFAs tell individuals to talk to an expert for financial advice, IFAs themselves should be seeking advice from experts to help explore their options as soon as possible. The big concern has to be the potential for significant redress liabilities. And given the typical IFA firm profile is rarely deeply capitalised, directors will need to be ensuring they are protecting themselves against any claims of wrongful trading, or trading whilst insolvent. In the most extreme cases, an expert will be able to help with restructuring options – for example, early engagement with the FCA is essential if a firm is hoping to reach some sort of compromise agreement, such as a Company Voluntary Arrangement (CVA). Alternatively, if Administration is the optimal restructuring option, consideration needs to be given as to whether a sale to a connected party or to the directors would gain FCA approval. Doing the right thing now might just preserve value in the client book for the future.

After all, it’s never too late to start making things right.