Defined BenefitOct 1 2020

Abridged advice launches to frosty reception

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Abridged advice launches to frosty reception

The regulator’s new abridged advice has launched today but questions remain as to whether it will be a success as take up is slow and there are concerns it could increase consumer confusion.

According to Keith Richards, chief executive officer of the Personal Finance Society, some firms have made moves to take up the new form of advice, but he expects the majority to instead refer clients to guidance or advisers for a recommendation either way.

Abridged advice sits in between triage and full pension transfer advice but can only result in a personal recommendation to not transfer out of a defined benefit scheme.

First mooted by the Financial Conduct Authority in a DB transfer paper in July 2019, abridged advice begins with an introductory chat with the client, where the adviser can get some high-level information about their circumstances in order to determine that they are not a viable candidate for a transfer.

Mr Richards said abridged advice can only work if the member understands it will always end in a recommendation not to transfer and that they “appreciate what they are giving up when they transfer out”.

According to Simon Harrington, senior policy adviser at Pimfa, only some adviser firms will offer this form of advice, suggesting that take up will be slow.

He said: “As with all policy statements and regulatory requirements, Pimfa has made our members aware [of abridged advice]. Ultimately the decision to take it up is a commercial rather than policy one. 

“Realistically, very few clients will be aware of abridged advice so the adviser will have to make them aware of it as they take them through the process. 

“It follows logically that the take up of abridged advice will ultimately depend on three factors: the appetite of firms to offer any form of DB transfer advice; the appetite of consumers to seek out DB transfer advice; and the appetite of firms to offer abridged advice. 

“Consumer demand and adviser supply are far more important drivers in this instance.”

Alistair Cunningham, director at Wingate Financial Planning, has confirmed that he will not offer the service but said he has made his clients aware of it.

In addition, he believes there will be an appetite from clients to seek out abridged advice, but only if “it’s explained and delivered properly”.

Consumer confusion

Meanwhile, Mr Richards has warned confusion about how the new advice process works could put clients off.

He said: “The process around abridged advice is likely to be a little unsettling to clients and very frustrating for those who feel they have already made a decision to transfer. 

“In many cases, they will be making a commitment to pay a fee for a service, but the only outcomes will be that they are told to take no action, which may be unwelcome news, and perhaps even more frustrating to be told that full advice might be appropriate.”

He added that if the difference between full advice and abridged advice is not explained sufficiently then abridged advice could lead clients into a “false sense of security”.

Mr Richards said: “This middle ground between triage and full advice on defined benefit pension transfers is likely to confuse consumers about what kind of advice they are getting.”

“Over the past two decades regulators and financial services profession have worked together to introduce several different alternatives to full advice through simplified, basic, execution-only and non-advised to name a few, all of which have failed to be recognised by consumers as a distinct service, as has been evidenced by consumer research: ‘advice is advice’.”

On the other hand, Mr Harrington said he cannot see a reason why abridged advice will not work saying it provides a good solution to “the problems of pension transfer advice: it is expensive and the outcome is binary”. 

He added: “The utility of abridged advice is that it allows advisers and consumers to reach a very narrow conclusion at a cost which should be affordable. 

“If there are shades of grey and more advice is warranted then the success of that outcome will be measured on the quality of the full rather than abridged advice.”

How it will work

In its policy statement, published June 4, the FCA confirmed that a pension transfer specialist must give or check abridged advice.

The FCA stated: “As abridged advice could represent the first stage of full advice, we believe it is more cost-effective to have a consistent approach, using a [pension transfer specialist ] cross both abridged advice and full advice. 

“We recognise that, while abridged advice will not appeal to all consumers, firms may be able to attract clients who would otherwise be unwilling to pay for full advice.”

Alongside abridged advice, the regulator is also introducing a ban on contingent charging from today.

Contingent charging means a client only pays for the advice if they go ahead with a transfer.

The FCA said introducing the ban will remove the conflicts of interest which arise when an adviser only gets paid if a transfer goes ahead.

Only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, will be exempt.

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