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.
The FCA’s intention is to provide advisers with an option that could be more cost-effective for consumers than full 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.
During a review of companies’ triage services, the regulator found some forms of triage may be giving advice on pension transfers and crossing the boundary rather than providing generic information.
Mr Percival says: “It is quite a pragmatic proposal by the FCA. A lot of the time it is obvious people should stay where they are.
“So, advisers were telling people they should stay where they are and what the FCA is saying [is], that is not triage.
“You have just given them a personal recommendation to stay in the scheme, but you have not done the suitability or full analysis; the other things that are required in order to give advice.
“That process of just telling those obvious clients to stay where they are – that is advice. [Having] a framework to do that more simply and cost-effectively – that is abridged advice.”
In theory, the level of work required to carry out abridged advice is meant to be less than that needed for full advice, and therefore the costs should be lower.
But Susan Hill, chartered financial planner at Susan Hill Financial Planning, says that the adviser needs to know the client’s full situation, including their scheme details, in order to give adequate advice on whether to remain or to transfer.
She adds: “There’s no way I am going to give abridged advice. You cannot say to somebody, ‘I am only going to give you half the advice... and give you an overview’. That is not advice.
“We need a recognised filter system. Half of the people I see with a [cash-equivalent transfer value] have no idea that the pension at date of leaving is not what they will get at scheme retirement age.
“Once I explain this simple fact and how it is revalued most say ‘thank you’ and go away, never to ask about leaving their scheme again. I can filter by giving an explanation or educating without ever seeing the client’s CETV.
“The moment they say they want to take advice, I will send a letter of engagement, then at that point I will start doing the fact find and go through the advice process. Prior to that I am just imparting information.”
Alistair Cunningham, financial planning director at Wingate Financial Planning, says he sees the abridged advice process working well where it forms part of a holistic advice process, but this does not mean less work.
Mr Cunningham adds: “Someone might come in and say, ‘I am looking to retire’.
“They have a combination of final salary pensions, defined benefit pensions and other investments and pensions that have not got those guarantees attaching.
“And you go through a process to say, ‘Your final salary is going to give you £30,000. You want £40,000, so take the £10,000 from these other non-guaranteed pots’.
“Where the abridged advice could work, there is saying to somebody, ‘Because you are in good health, because you are married, because you have three quarters of your income covered by guaranteed sources, we do not recommend you transfer out’.
“However, understand, we have not asked for values of this scheme.
“So we are just using a default position that it is in your best interest to have the guarantees. If you do not look at the entire situation, I can’t understand how it works. You are doing other work not related to DB transfers.”
If the initial reactions of advisers to the regulators’ plans are anything to go by, it may be some time before they are ready to adopt those plans.
Tenet says before its advisers make a decision to provide abridged advice, it would have considered “very carefully” the fact that, although the FCA has proposed guidance indicating that full information on the DB scheme should not be necessary when giving abridged advice, that would be guidance.
Mr O’Leary adds: “There is scope in the future for abridged advice to be found to be unsuitable if a client or his estate or beneficiaries suffers a loss as a result of not transferring.”
Ima Jackson-Obot is deputy features editor of Financial Adviser and FTAdviser.com
