Clearly, any move by the Financial Conduct Authority that improves outcomes for consumers is to be welcomed.
That is certainly the main thrust of the PS20/06 pension transfer advice, published by the FCA earlier this month, although a worrying possible impact of the contingent charging ban is to restrict access to advice to only the wealthiest in society.
As a result, millions of people who remain in deferred defined benefit schemes will be denied access to financial advice on one of their most important assets.
The backdrop to PS20/06 is that the quality of advice has shown signs of improvement; the number of companies participating in the market has been steadily falling. At the last count, 700 companies have ceased operating in this market in recent years, and the number of members transferring their benefits continues to fall.
It could therefore be argued that the actions already taken by the regulator so far appear to be having the desired effect.
The FCA has heard these access to advice concerns and has taken steps to address the issue by introducing a ‘carve out’ for those in ill health or those in financial hardship. Both tests require a degree of judgment to be exercised by the adviser.
In the case of ill health, where the regulator acknowledges the challenges in asking a medical practitioner to commit to a life expectancy of below age 75 for a patient, it appears to be asking the financial adviser to do just that, which is a concern.
The second proposal for addressing access to advice is the introduction of abridged advice. While I agree that this will be useful, it is curious that it may serve to undermine the intent of the contingent charging ban.
If we end up with a situation where most people who are advised not to transfer pay less than those advised to transfer (the regulator has itself agreed that the rules do not prevent companies from charging nil for abridged advice), are we not back in the same place we started?
Having said that, how much less abridged advice would cost versus full advice is open to debate.
The elements that are missing from abridged advice are appropriate pension transfer analysis, transfer value comparator and a product recommendation, although what remains is sufficient ‘know your customer’, sufficient scheme info and the requirement for a pension transfer specialist to sign the report off.
Furthermore, while the regulator is understandably noncommital on whether abridged advice will be VAT free, it does remind us that abridged advice cannot permit companies to recommend a receiving scheme, perhaps a subtle hint that, in its view, this a VAT-able service.
All these add up to service that may not be as low cost as initially envisaged.