On Monday (26 March), the regulator published a policy statement on advising on pension transfers, where it retreated from plans to change its assumption that defined benefit (DB) transfers are usually unsuitable.
The regulator also published a consultation paper on the same day, which floated the idea of banning contingent charging for transfer advice to stop conflicts of interest, as well as requiring pension advisers to get further qualifications to practice.
Claire Trott, head of pensions strategy at consultancyTechnical Connection, argued that the new rules coming in to force on Easter Sunday “are more an exercise in the FCA documenting what they expect rather than any major changes”.
Here are the incoming rules advisers should be aware of:
Personal recommendation
Having considered the client’s individual circumstances, at the conclusion of the advice process, advisers are expected to provide a personal recommendation to the individual to either transfer or remain in the current scheme.
Ms Trott argued that most advisers would already be doing this, since in order to decide the right choice, the adviser needs to look at the receiving product and investments.
She said: “This was good practice before and remains so, but the requirement has just been formalised.”
Full information
If an adviser cannot get the necessary information to assess suitability, for example, income needs in retirement for a younger client, advisers must not make a personal recommendation under FCA’s suitability requirements, and the transfer can’t go ahead.
Ms Trott stated that she “would be surprised if any advisers would have been willing to give a recommendation to transfer in cases where sufficient information wasn’t forthcoming”.
She said: “Again, this is the FCA setting out their expectations formally rather than just assuming that advisers would follow this approach anyway, so for those giving good detailed advice already this won’t pose any issues”.
Checking figures
The pension transfer specialist should go beyond just checking the numerical analysis of the transfer, and now he will also need to assess the reasonableness of the personal recommendation reached by the adviser, assess the compliance and reasonableness of the adviser’s comparison, and inform the adviser in writing of any disagreement with the advice process.
Ms Trott said: “Pension transfers are much more about good outcomes for the client and less about the actual numbers, especially with the higher [cash equivalent transfer value] CETVs of late - this means that all the information needs to be reviewed by the pension transfer specialist anyway.
“I believe that any pension transfer specialist putting their name to a transfer would want to understand the whole picture or they wouldn’t be willing to put their reputation at risk.”
Advice to active members
When an individual is planning to opt out of being an active member of a DB scheme, advice must checked by a pension transfer specialist, and record keeping requirements apply, the FCA said.
Ms Trott concluded: “All in all, the changes that are coming into force on 1 April are about good practice so shouldn’t impact those already providing their clients with the service they deserve.”
maria.espadinha@ft.com
