Defined Benefit  

FCA says good advice will sort PI challenge in latest DB guidance

Other changes

Today’s finalised guidance is largely the same as the draft guidance which was published in June 2020 alongside the regulator’s final rules for DB transfer advice, which saw the banning of contingent charging and the introduction of abridged advice.

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As the finalised guidance is based on existing rules, it comes into effect immediately.

Changes made to the guidance as a result of adviser feedback included clarification on how to use estimated transfer values when carrying out abridged advice.

Further examples of good and poor practice were also added in a number of areas, including charges disclosure, abridged advice and appropriate pension transfer advice.

In its guidance the regulator provided a number of examples across topics such as managing conflicts of interest, the use of introducers and charging structure disclosure.

For example, under the section looking at conflicts of interest, the FCA warned firms should be particularly aware of and manage conflicts of interest where the firm’s interest in the outcome of a service provided to the client is separate from the client’s interest in that outcome.

As an example of good practice the regulator looked at a firm that operated a centralised investment proposition, which meant it would profit from ongoing advice charges and easier administration if it recommended a transfer and its CIP solution.

To demonstrate that it managed this conflict of interest the firm would disqualify the pension transfer specialist if its pre-sale business review function identified that a transfer and investment into the CIP had been recommended when it would not be suitable. 

The regulator has also teamed up with the Pensions Regulator to update separate guidance on what employers and trustees can do to help their members understand their options without straying into financial advice.

Earlier this year, data from the FCA showed that the number of active firms in the pension transfer market had declined from 2,426 firms in 2015/18 to 1,310 firms in 2018/20.

But there were 103 (6 per cent) new entrants to the market. Overall, the regulator said there were currently 1,521 firms with DB transfer advice permissions.

The FCA said the reduction in firms could be as a result of not having adequate professional indemnity insurance for this form of advice, while other firms have given up their permissions as they had not used it for an extended period. 

amy.austin@ft.com

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