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.”
The FCA decided to act on this issue because it thought given the advantages of defined benefit pensions, the proportion of consumers being advised to transfer out was too high.
It proposed abridged advice alongside a ban on contingent charging, which will apply to all DB transfers with the exception of specific groups of consumers in certain identifiable circumstances, such as people suffering from serious ill health or experiencing serious financial hardship.
But in these instances advisers will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.
Alastair Rush, principal at Echelon Wealthcare, noted that “delivered at the time and point of sale, DB advice is too emotive to be as safe as we’d all like it to be”.
He said: “Heads are turned with the merest suggestion of pots worth hundreds of thousands of pounds.
“The FCA wording in its prelims was stark and a salutary warning. Advice, generally, is letting down the people we exist to serve. I don’t think that adding another layer of complexity will help much.”
maria.espadinha@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
