FCA rules to prompt pension specialists to exit market

In its 58 page-long policy statement, titled Improving the quality of pension transfer advice, the Financial Conduct Authority (FCA) announced pension transfer specialists have until 1 October 2020 to obtain a level four qualification for providing advice on investments if they want to continue to offer their services.

Simon Harrington, senior policy adviser at the Personal Investment Management & Financial Advice Association (Pimfa), said the new rules are "entirely sensible", but will "almost certainly" have an impact in the number of professionals serving this market.

He said: "We think it is likely that pension transfer specialists who don't currently hold this additional qualification will think twice before moving to get newly qualified.

"There are a number of factors on why this might be: their career plans, age, time available or indeed their willingness to advise on pension transfers in future.

"Inevitably there will be a drop-off in the number of people able to advise on pension transfers in the future."

The rationale for the new rules is that while a pension transfer specialist may not always be giving the investment advice, the FCA stated they do need to be able to identify whether, in the context of overall suitable pension transfer advice, a proposed scheme and investment is consistent with a client's needs.

Hopes the FCA would allow gap-filling for those pension transfer specialists who may have passed the relevant exams some years ago were dashed, with the regulator stating everyone would have to pass the level four exams to continue to sign-off transfers from late 2020 onwards.

The reputational risk of being associated with defined benefit (DB) transfers is fraught with difficulty, and isn't worth the pain.Andrew Boyt

The new qualifications will cost these professionals around £4,750, according to an FCA estimate.

This is broken down in a one-off examination cost of £750, and 100 hours of additional studying - which multiplied by an average hourly cost per adviser of £40, will represent a bill of £4,000.

There are currently some 5,000 active pension transfer specialists in the UK market.

Andrew Boyt, pension transfer specialist and freelance consultant, agreed with Mr Harrington.

He said: "The additional responsibility confirmed in the policy statement may give some non-advising pension transfer specialist food for thought, and may lead to some of them concluding that the reputational risk of being associated with defined benefit (DB) transfers is fraught with difficulty, and isn't worth the pain."

But Mr Boyt, who already has the required qualifications, agreed with the new demand from the regulator.

He said: "Such (pension transfer specialist) individuals may have excellent technical knowledge of DB pension transfers, but limited exposure to investment theory/practice, and little or no 'face time' with clients.

"This can turn the process into a technical exercise rather than an 'advice' process."

However Rory Percival, former technical specialist at the FCA, said he suspects the new requirements won't apply to most of pension transfer specialists, as they already have the required qualifications.

He said: "I don't think many will drop out - it is profitable work."

Ray Adams, director and in-house chartered financial planner at CashCalc, said the requirements should only apply to a "small number of pension transfer specialists who are currently working in a non-advisory role," such as technical support or compliance.

He said: "I know of very few pension transfer specialists who aren't already at level four standard and active financial planners at the same time."

Mr Adams said pension transfer specialists were more likely to leave this area of advice due to the increased professional indemnity insurance.

He said: "The fallout of the British Steel saga last year has already seen some pension transfer specialists say they'll not take any new business, so I think this will play a much bigger role than the qualifications."

The FCA declined to comment on this matter.

maria.espadinha@ft.com