Providers cautioned against verbal pensions warnings

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Providers cautioned against verbal pensions warnings

Neil MacGillivray, who is also head of the technical support unit at James Hay Partnership, told FTAdviser that written documentation is the preferred method of delivery.

In February, the regulator published its without-consultation intervention to offer additional protection to clients accessing income under new pension freedoms, including requiring providers to offer risk warnings to clients approaching directly to access their fund.

The only exceptions to providing the personalised risk warnings will be if an adviser is acting on a client’s behalf or if warnings have already been provided. Providers will need to ask limited personal questions and offer warnings specific to the method of access.

However, the regulator did not tell providers which was the best way to deliver the warnings, stating they could do it in telephone, in person or in writing.

In documentation seen by FTAdviser, Amps put a number of questions to the Financial Conduct Authority, asking for further detail of what the regulator expects from firms.

In its response to Amps, the FCA said: “We require firms to ensure that the consumer is aware of the risks of the course of action they are seeking to take.

“To do this the firm must identify if a risk factor is present by asking the consumer questions. We expect firms to give risk warnings unless the consumer’s response to the questions establishes that a risk factor is not present. If it is unclear whether a risk factor is present, a firm should give the consumer the appropriate risk warning.

“Firms must go through the question and answer process rather than, for example, give generic risks warnings based on how the consumer is accessing their pension savings.”

In response to the possible implication that this guidance implies a verbal conversation is necessary, Mr MacGillivray said: “I don’t think that’s the case... if you were do it verbally you would be at risk of straying into advice.

“In fact it is to the contrary - we would want to make sure it is all in writing so it is beyond challenge.”

Previously, Royal London and Old Mutual told FTAdviser the best way to deliver the warnings is verbally as consumers are far more likely to understand the complex areas. Typically they advocated a formal discussion involving questions, followed by a summary document.

A straw poll conducted by FTAdviser’s straw poll revealed providers are taking different approaches to delivering the consumer warnings.

Claire Trott, head of technical support at Talbot and Muir, said that the firm took the stance that giving ‘second line of defence’ questions and appropriate risk warnings in writing gives clients the time to think over their options.

“Invariably the warnings will be substantial and just running through them over the phone could mean that someone will switch off thinking that these issues don’t or won’t apply to them.

“The written approach may be seen by some as providers hiding behind reams of paper, but these decisions are irreversible and should not be rushed into.

“Providers should be protecting their clients as best they can and this is one way of giving the client, who hasn’t taken advice time to really consider their options. Those with advisers who benefits are being facilitated by advisers do not need to go through this process.”

Amps also asked the FCA about ‘shopping around’ in its questions, for example if an existing client was seeking to access drawdown for an existing pension whether firms are still supposed to ask them if they had shopped around.

Amps had also said it is not clear why an operator would be expected to encourage an existing client to shop around when regulated financial advice is not being provided.

The FCA said in its response: “The risk we are concerned about is that by not being aware of the ability to shop around consumers choose expensive or uncompetitive products or do not purchase the best product for their circumstances.

“Therefore highlighting to consumers the benefits of shopping around and how to shop around is an important protection to prevent poor outcomes for consumers.”

Mr MacGillivray’s response was: “The bottom line is if the FCA say we have to do it then I don’t think we have the option not to. The fact of the matter is if a client took advice you could lose the business anyway.”

ruth.gillbe@ft.com