One of the most problematic areas for advice, if not the most is, is around defined benefit (DB) pensions transfer.
This is because there is potential for significant consumer harm if consumers who are considering giving up these benefits are given unsuitable advice.
Since the introduction of pension freedoms in 2015, there has been a considerable increase in the demand for pension transfer advice and in the volume of actual transfers.
As well as proposing and making changes to its handbook requirements on pension transfer advice, the FCA has also carried out extensive supervisory work in this area.
In its most recent paper on pensions transfer in July the regulator proposed the concept of abridged advice, alongside a proposed ban on contingent charging.
The move has been triggered by concerns the FCA has that the pensions transfer market is not working as well as it should be.
The proposed measures are intended to change how advisers manage and deliver pension transfer advice; including abridged advice so that firms can deliver low cost advice to customers who should not transfer.
Under the FCA’s proposals, advice will qualify as abridged advice only if the result is that the adviser:
- Makes a personal recommendation (as per the usual definition, above) not to transfer; or
- Informs the client that abridged advice has proved inconclusive and offer full advice, setting out the costs, which cannot be on a contingent charging basis unless the ill health/financial hardship exceptions to the proposed ban on contingent charging apply.
Patrick O’Leary Policy Manager at Tenet Group says that there has been a mixed response from the network’s advisers towards abridged advice. Some are concerned about the potential liabilities, while others believe it might be of value.
Mr O’Leary says: “Some advisers see abridged advice having a place in cases where a consumer is not deterred by triage information/guidance but a high level analysis of the client’s circumstances causes them to be confident that the client is highly unlikely to be an exception to the general rule that a transfer would not be in their best interests.
“Advisers will need to consider whether they wish to accept the risks of engaging with abridged advice and it may well be that a significant number of advisers will not do so.”
The intention with abridged advice, given the fact in most cases the FCA says the advice should be not to transfer, is to offer the option of a low cost but efficient route.
Mark Spiers a partner at Bovill says: “My reading of [the FCA] paper is that the adviser does not need to go through the full analysis process.
“The FCA has said, 'You don't need to get your transfer value comparator (TVC), you don't need to get all the details of the DB scheme, you don't need to do your Appropriate Pension Transfer Analysis (APTA).
"So what you are doing really, is asking the clients about their objectives and circumstances to assess who is [suited or unsuited] for a transfer."