Defined BenefitOct 19 2018

Complaints against pension transfer advisers set to plummet

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Complaints against pension transfer advisers set to plummet

The Financial Conduct Authority's new rules for pension transfer specialists should see the number of complaints against advisers plummet, according to industry experts.

In a 58-page policy statement published at the start of this month the FCA set out new rules for advising on pension transfers where consumers are considering giving up safeguarded benefits, primarily for transfers from defined benefit (DB) to defined contribution pension schemes. 

Jacqueline Lockie, head of financial planning at the Chartered Institute for Securities and Investments (CISI), said as a result of these new rules being followed there would be less complaints made about pension transfer advice in the future.

Whether the advice is to stick with a scheme or transfer out, according to the FCA's new rules an adviser must now produce a suitability report.

According to the FCA the report provides the adviser with a record which should help them if there is a future dispute but it does not change adviser liability; an adviser is always liable for the recommendations provided.

The mandatory suitability reports brought in as part of the new regulation will help clients understand the risks involved in transferring out of a pension, meaning they will be less likely to make complain in the future, Ms Lockie said. 

She said: "I expect there will be fewer complaints made as advisers will send a full report to the client stating the reasons and mitigating factors for the client not to transfer their pension benefits.  

"This will be an important historic record for both parties and will help clients understand the complex areas and factors involved in making a decision to transfer, many of which, clients do not fully understand

"I would expect that where a full analysis has been completed then advisers will be able to successfully defend any future disputes.

"The issue might come where the advice not to transfer is given with limited information. Here is the area that might be open to dispute.

"It might be obvious to advisers in some cases, that the recommendation should be not to transfer, but the paperwork and reports should be clear where this decision is made on limited information.

"Whilst it might realistically be unlikely that a different decision would be made with more facts, it does leave the door open to a future challenge from clients.”

Under the new rules, advisers will be required to compile a suitability report for every client which will provide the adviser with a record which should help them in the event of a dispute.

The report does not change the liability and under the new rules, the adviser will remain liable for the recommendations given, whether the advice is to stay in the current scheme or transfer out.

The mandatory suitability reports could give advisers better means to defend themselves against complaints made against them if it gets brought to the Financial Ombudsman Service (Fos) or the courts. 

Garon Anthony, partner at law firm Squire Patton Boggs, said: "The new rules mean that advisers must put together reports outlining why they gave a client positive or negative advice. 

"If a client complains about negative advice given to them because it meant that they lost money, the advisers will have a written document as evidence that the client understood the basis under which the advice was given.

"If an adviser can bring forward the suitability report as evidence at the time then it should count as a good defence."  

Al Rush, principal at Rutland-based financial advisers Echelon Wealthcare who helped British Steel pension members, said: "I think complaint numbers will fall because the amount of transfers taking place will fall.

"I doubt that many scheme members will want to pay to be told not to transfer.

"If contingent charging is still permissible, how are those who have less chance of being advised to transfer, because they would benefit from the certainty of defined benefit income, going to pay?" 

Neil Adams, pension and investment strategists at Drewberry Wealth, said a more robust process will reduce the amount of complaints seen in the future.

He said: "A robust advice process will reduce future complaints, whether it is a recommendation to transfer or not. A change in rules is an ideal opportunity to address the whole advice process.

The FCA declined to comment when asked how the new rules would impact the number of complaints made against advisers. 

rosie.quigley@ft.com