Defined Benefit  

Abridged advice met with caution

Abridged advice met with caution

The Financial Conduct Authority has been looking for a halfway house between full advice and guidance, especially in relation to defined benefit transfers.

And while some may say it is a noble idea, the plans have been met with a lot of criticism from advisers.

A poll of 712 financial advisers by Prudential has found that almost half (47 per cent) said they would not be offering abridged advice.

Patrick O’Leary, policy manager at Tenet Group, says there are differing views among its members about the merits of abridged advice; adding that the network is still consulting with a view to responding to the consultation.

Mr O’Leary adds: “Since it would be a personal recommendation, abridged advice would be subject to the suitability requirements of [the FCA’s Conduct of Business Sourcebook section] 9.2 and advisers would be liable in the usual way for client losses subsequently found to be caused by deficiencies in that advice.

“Some advisers are concerned that the potential liabilities that arise when giving advice on defined benefit transfers are so great that they could not contemplate making a personal recommendation not to transfer without carrying out a full analysis of the DB scheme.”

Under the FCA’s proposals, abridged advice would sit in between triage and full pension transfer advice. 

During the triage process, advisers are not supposed to offer advice; just factual and balanced information.

Key Points

  • The FCA launched the concept of abridged advice in the summer
  • Advisers are concerned about how much input they should have
  • Advisers are also concerned about liabilities

Full transfer advice typically includes a full analysis of both the client’s circumstances and the DB scheme benefits.

In its consultation paper CP19/25, the FCA says: “Under abridged advice, we would expect the adviser to conduct a full fact-find and risk assessment, including an assessment of the client’s attitude to transfer risk in line with our guidance on assessing suitability.

“Based on this analysis, the adviser may provide the consumer with a personal recommendation not to transfer or convert their pension if they can demonstrate that a pension transfer or conversion is unlikely to be suitable. 

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

So, the FCA’s intention is to provide advisers with an option that could be more cost-effective for consumers than full advice.

Where pension transfer advice meets the relevant abridged advice conditions, the proposals would mean that it could be provided at a lower fee than full advice or even on a nil fee basis and not caught by the ban on contingent charging.

According to Rory Percival, regulatory expert and adviser at Rory Percival Training and Consultancy, the FCA is trying to prevent a situation where advisers, having taken down some information on their circumstances, are telling individuals not to do a transfer, but are not going through the advice process.