Q&A  

Transfer advice should cover all bases

Transfer advice should cover all bases

Q: What do the Financial Conduct Authority’s rule changes mean for advisers active in the pension transfer market?

A: As the industry deals with the aftershocks of a nationwide lockdown and other FCA projects have been put on hold, the regulator is still forging ahead with its work around defined benefit pension transfers.

It came as no surprise when, in its June policy statement, the FCA finally drew a line under contingent charging — an issue that has dominated debate over the past few years. 

But what else did the FCA focus on and how can companies ensure they are continuing to meet expectations? 

The overarching theme — and the impetus for this review — was the need for better quality pension transfer advice.

A review of files from 2015 to 2018 showed just 55 per cent of advice can be deemed suitable, with adequate evidence to support that.

A further 28 per cent were missing key information, meaning the suitability of advice is open to challenge.

While the FCA noted a steady improvement over time, it still thinks standards aren’t good enough.

In response to the large number of files with ‘material information gaps’, the FCA included a number of helpful guidelines and templates in the guidance consultation, which you should take advantage of.

The scheme data template, for example, is a useful checklist to help advisers collect all the relevant details about a scheme before providing a final recommendation.

Above all, you should be making sure that all files are complete, and your advice can be backed up with clear evidence. 

Another thing to consider is the new requirement to show that a receiving scheme is more appropriate or provides better value for money than a client’s existing workplace pension.

Along with the ban on contingent charging, this is an attempt to reduce the risk of conflicting interests in the advice process and enable higher standards.

From now on, you should include a workplace pension analysis in the appropriate pension transfer analysis and use this to show why a recommended scheme is in the client’s best interest.

Bear in mind that this all depends on your client’s individual circumstances, risk appetite and objectives. 

As part of its drive to improve standards, the FCA has also increased the minimum CPD requirements for pension transfer specialists.

Your PTS should undertake an additional 15 hours CPD a year, with at least five of those hours provided by external resources.

Not only will this enhance skills and knowledge around pension transfer advice, but external training provides an opportunity for your specialists to keep up with wider market trends.

Consider the ways in which you can support your PTS with the new CPD requirement. 

Finally, the FCA has also committed to empowering consumers and has released a new ‘advice checker’ document with the new guidance, making it easier for clients to determine whether they’ve received unsuitable advice.