Defined BenefitAug 7 2019

Advisers turn their backs on 'abridged advice'

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Advisers turn their backs on 'abridged advice'

Advisers are particularly worried that the new advice model will leave them more exposed to complaints and that they won’t be able to offer the service at the low cost the regulator expects.

They also think it will create confusion for consumers unable to differentiate between the many types of advice now on offer.

Abridged advice was proposed by the regulator in its latest paper on defined benefit pension transfers.

It is expected to consist of an introductory chat with the client, where the adviser gets some high-level information about their circumstances and determines that the consumer isn’t a viable candidate for a DB transfer.

The adviser is then 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.

The result of abridged advice can only ever be to not transfer and 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.

During a webinar on the FCA’s proposed new rules in the pension transfers area – which also include a ban on contingent charging – Prudential polled 712 financial advisers, concluding that 47 per cent of these said they won’t be offering abridged advice.

This fell well short the regulator’s expectations, which estimated that 75 per cent of firms will be prepared to operate an abridged advice service.

Overall, a quarter (24 per cent) of advisers surveyed by the provider said they weren’t active in the DB market and with those removed from the overall results, half of those remaining (50 per cent) predicted they would do less DB business if the proposals were progressed and 14 per cent said they would stop doing DB transfers altogether. 

Some 36 per cent of advisers did not think there’ll be any impact on their business from the proposals.

Paul Stocks, financial services director at Dobson & Hodge, warned the FCA's proposal for abridged advice “could well create more ‘grey areas’ around what advice is”.

He also noted that it can “potentially leave advisers open to complaints if something isn’t considered under abridged advice which the client, a claims management company or the Financial Ombudsman later feel should have been”.

Ian Browne, pensions expert at Old Mutual Wealth, said since abridged advice will result in either a recommendation not to transfer or to seek full advice, the adviser has based their decision on the personal circumstances of the client, so this should be covered by the Fos.

Rebecca Aldridge, managing director of Balance Wealth Planning, welcomed the FCA’s proposals, but said there were very few instances when abridged advice could be safely offered.

She said: “My experience is that, for many clients, after a good initial discussion, with a reasonable knowledge of their situation, I can judge with 90 per cent certainty whether they are likely to be better off keeping their scheme or transferring it.

“Under these new proposals, I could provide lower-cost abridged advice more quickly, if I feel they should keep the scheme. But 90 per cent certainty of the best advice isn’t good enough. It’s not good enough for me, a client, the regulator or our insurers.”

The FCA expects this middle ground advice to be cheaper than full advice and said it can also be offered for free if firms wish, but advisers are weary of this.

Gem Durham, independent financial adviser at Obsidian, said: “The FCA isn’t considering any figures in their proposals as to what they think advisers should charge for this.

“I think it is going to cost more than what they anticipate, because of the additional risk that advisers are taking on when this becomes official, and clients could seek damages if the adviser gets it wrong at this point.”

Simon Weeks, director of Red 7 Financial Management, noted that he doesn’t see many advisers being able to offer this service at a significantly reduced cost.

He said: “You don't need to do a TVC but they can be completed fairly easily, and there seems to be some room for interpretation about the cashflow modelling side of things. 

“I just think in order to do the job well, you are not far away from what you need to do for a ‘full advice’ service. So if that costs, say £3,000 for the sake of argument, the idea you could offer ‘abridged advice’ for, say 20 per cent of that cost, doesn't stack up to me.”

However, Mr Weeks noted that it could work in certain situations, such as with existing clients “where you want to do a quick sanity check on a DB pension, to ascertain whether they are best served taking the benefits from the scheme or doing a transfer”. 

He added: “That could shortcut the process as you will already have a lot of the information to hand.”

What's more, the abridged advice won’t be enough to consider whether a client is insistent, according to the proposed rules.

Fiona Tait, technical director at Intelligent Pensions, explained that in order to proceed on an insistent basis the client still needs to have taken full advice – and only after that the customer can look for another adviser who is prepared to make a positive recommendation against the existing advice, or a provider who is willing to accept a transfer where advice has been taken but the client wishes to ignore it.

Ms Tait believes the idea of abridged advice is a good one, however.

She said: “There are a number of scenarios, such as where the client is - or will be - highly reliant on the guaranteed income stream from this pension to meet their everyday needs, which make it very unlikely that a transfer will be suitable, regardless of the value and shape of the scheme benefits.”

maria.espadinha@ft.com

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