Defined Benefit  

Abridged advice can be offered free of charge

Abridged advice can be offered free of charge

The Financial Conduct Authority is proposing a middle ground between triage and full advice on defined benefit pension transfers, which can be free of charge if firms so wish.

Edwin Schooling Latter, FCA’s director of policy, told FTAdviser that the regulator is proposing abridged advice as another route for consumers to have access to lower fees and that it came in response to adviser requests.

The new form of advice was proposed in a consultation paper published this morning (July 30), which also proposed a ban on contingent charging.

Mr Schooling Latter said: “The idea behind this is that there is a relatively cost effective way of getting that simple and straightforward advice when it is pretty obvious that transferring isn't the right idea.

“In [the] triage space is very important not to overstep the mark into giving advice to clients.

“This abridged advice will of course involve some element of fact finding from the client to support the advice recommendation, but there is a recognition here that if you are going to advise someone to transfer, then you need quite a lot more information about the full details of the clients’ circumstances - whereas in some cases it will be relatively easy to conclude that the transfer isn't in the clients’ best interests.”

Abridged advice is expected to include an introductory chat with the client, where the adviser can get some high-level information about their circumstances, and determine that the consumer isn’t a viable candidate for a transfer.

For instance, this will be the case when the client only has one pension, the individual isn’t financially experienced or has a low capacity for loss.

The result of abridged advice can only be not to transfer, and the adviser is expected to conduct a full fact-find and risk assessment, including an assessment of the client’s attitude to transfer risk in line with the FCA’s guidance on assessing suitability.

This means that some consumers may receive a personal recommendation not to transfer without an adviser having to collect detailed scheme data, undertake an appropriate transfer analysis or provide a transfer value comparator.

Nathan Fryer, paraplanner and director of Plan Works, doesn’t approve of the FCA’s proposals.

He said: “Personally I think you can only provide full advice or triage. I think the risk of the abridged service is that you are making a decision based upon just the clients’ personal circumstances.

“Whilst I can see what they are trying to do, i.e. not to have to do the full research of the scheme, I think the risk is that the scheme could be offering an enhanced transfer value that could be in the clients' best interests to transfer or in the situation of the British Steel Pension Scheme, if you don’t know about the scheme, how can you make an informed judgement of what is in the clients' best interests.”