Defined Benefit  

Dos and don'ts when giving DB transfer advice

Conflicts of interest

When giving DB transfer advice, firms should be particularly aware of and manage conflicts of interest where the firm’s interest in the outcome of a service provided to the client is separate from the client’s interest in that outcome, the FCA warned.

As an example of good practice the regulator suggested a firm that operated a centralised investment proposition, which meant it would profit from ongoing advice charges and easier administration if it recommended a transfer and its CIP solution.

To demonstrate that it managed this conflict of interest the firm would disqualify the pension transfer specialist if its pre-sale business review function identified that a transfer and investment into the CIP had been recommended when it would not be suitable. 

Poor practice on the other hand would include a firm whose manual states that when advising clients in ill-health to transfer out of a DB scheme, the adviser should consider recommending the client should go into drawdown and take ongoing advice.

By setting out a process that did not adequately recognise the role of lifestyled or impaired life annuities, the FCA said this would show the firm was prioritising itself over the client.

Financial promotions

When advertising on online search engines to attract new clients, firms are not allowed to use misleading wording, the FCA warned.

For example, if a firm were to state that "the higher the transfer value, the more likely it is to be suitable" or that it could help savers access their funds without acknowledging that the client may be advised not to transfer, then this would be poor practice.

Instead the firm should state that through its advice it will either show the transfer is in the best interest or that it is unsuitable and therefore the best outcome would be to stay in the DB scheme.

Managing carve outs

On Friday (June 4), the regulator announced it was pushing ahead with its ban on contingent charging in most circumstances, with only consumers with certain identifiable circumstances, such as individuals suffering from serious ill-health or experiencing serious financial hardship being exempt.

In the minority of cases where contingent charging is permitted, advice firms will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.

But the FCA warned firms must have a "clearly defined policy" on how to deal with these types of clients.

This would set out a requirement to record details of eligible clients in a register, including the reasons the client was eligible and the outcome of the advice, as well as first offering abridged advice to confirm eligibility for the exemption.