The regulator is being urged to investigate what could be wider fundamental problems in the defined benefit (DB) transfer market, before seeking to fix it with more rules on advice.
The Financial Conduct Authority is expected to publish its finalised rules on DB transfer advice at the end of March, having consulted on the issue since June last year.
It had proposed a number of remedies to make advice safer for consumers, who by law have to seek advice on all DB transfers worth more than £30,000.
But Rachel Vahey, product technical manager at platform Nucleus, said the FCA is intervening in the market before pinpointing its problems.
She suggested the core of the problem is the lack of access to advice and the cost involved.
She said: "We need to go back and have a look at how we make this work, look at whether someone has the cash at their disposal [to pay for the advice] or not - this should not influence the decision to transfer or not.
“The FCA should be acknowledging the elephant in the room. It’s about taking a step back to see what is the problem we are trying to solve.”
Among measures proposed in its consultation, the FCA is looking at altering the starting assumption that a transfer is unsuitable to one stating “most consumers will be best advised to keep” their defined benefit pensions.
It also intends to add a requirement that advice on conversion or transfer of safeguarded pension benefits must now include “a personal recommendation”.
For pension transfer specialists checking the advice of another intermediary the regulator will add guidance to make clear this means assessing the reasonableness of the personal recommendation not simply running the numbers.
The FCA also widened its probe of DB transfer advice to include all advisers holding the specialist qualifications, after detecting large numbers of unsuitable cases following the British Steel pension debacle at the end of last year.
In a letter sent to advisers in January, it warned against what it called ‘commoditised advice’, where specialists fail to take account of the needs and circumstances of the client.
Meanwhile, MPs have called on the FCA to ban contingent charging in a report in February, which was backed by advisers.
Ms Vahey welcomed the idea but warned against a kneejerk reaction in light of the way the market currently works.
She called for more focus on the cost of advice and the role guidance can take in DB transfers to help people, work that should link back to the issues uncovered by the Financial Advice Market Review.
Ms Vahey said: “The kneejerk reaction would be to ban contingent charging but it’s more complicated than a kneejerk reaction.
“I’m asking for a wider acknowledgment of the [underlying] issues and to better explore the solutions.”
The restructuring of the British Steel Pension Scheme currently underway has prompted large numbers of members to consider transferring out of the scheme.
But it was reported late last year that people had found it difficult to find an adviser to help them make their decision and as a result fell into the hands of introducer firms, which referred them to cheaper forms of advice.
An adviser at the scene in Port Talbot told FT Adviser many of the steelworker pension schem members either did not have the disposable income to pay for the bespoke advice or simply did not want to fork out the cash.
Nevertheless, advisers have backed the calls for a ban of contingent charges.
Andy Cowen, head of financial planning at Tilney, told FT Adviser: “Contingent charging is not compatible with best client outcomes and creates an inappropriate incentive for some advisers to recommend transfers.
“What clients need is objective advice and this can only be driven through setting apart, and separately charging for, the pensions technical advice as distinct from any subsequent investment recommendation.”
Rory Percival, a former technical specialist at the FCA now business consultant, agreed there was no way around the cost of good suitable advice but said he was open to certain exemptions, where people evidently cannot pay for the advice.
The FCA said it engaged in ongoing policy work to review the rules and guidance on advising on DB transfers, and had supervision work going on which looks at the whole of the market.
It said it was reviewing the rules on financial advice on pension transfers at the moment to ensure they are fit for purpose in the new environment.
carmen.reichman@ft.com
