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Advisers back FCA pension transfer guidance on critical yields and insistent clients


Advisers have welcomed further guidance on pension transfer suitability as the FCA sets out its position on critical yield calculations and insistent clients.

In a note to advisers earlier today, the regulator said that recommending pension transfers just because the critical yield is below a rate the firm sets to assess transfers generally does not meet its expectations, and that factors including likely asset returns and personal circumstances need to be taken into account.

Forty Two Financial Planning director and Chartered Institute of Securities and Investments Financial Planning Professional Forum chair Alan Dick says he agrees that basic criticial yield figures cannot be used to justify a transfer.

Dick says: “Clients wanting a transfer even with a ludicrously high critical yield might be doing the right thing because of whatever peculiar circumstances. You never know that until you actually go through the client circumstances with them and decided what they are trying to achieve.”

Selectapension national accounts director Peter Bradshaw also welcomed the FCA’s position.

He says: “It’s vital that the right emphasis is given to an individuals’ full financial circumstances, and advice must be based on demonstrable facts…Whilst critical yields are important, they become secondary where clients’ personal circumstances require, for instance, changes to death benefits or releasing funds to pay off debts.”

In the updated guidance, the FCA also reinforced warnings about outsourcing responsibility to third parties when conducting pension transfers, and that advisers must still provide suitable advice, with a clear documentation of risks and alternative options, even when clients wish to transact against a recommendation.

Addidi managing director Anna Sofat says she welcomes the FCA turning its attention again to the issue of insistent clients.

Sofat has seen two clients in recent months on a flat-fee basis to assess their pension transfer options, but refused to transact when one wanted to transfer against her recommendation

Sofat says: “It’s easy to play on clients’ emotions and it’s the choice of advisers whether to do that. We need to be hard headed about what we do as advisers; it isn’t to pander to their prejudices.”

“We are paid to provide independent advice and not necessarily reinforce the view of the client…Being blunt I’m not sure if all advisers take that firm line.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I read it this morning and didnt think that there was anything in it that was not already covered off by COBs 19 and previous guidance elsewhere

    I guess FCA issued it because as the opening line stated “We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their clients funds will be invested”

    This seems like a very late reminder to advisers not to transfer or switch into SIPPs and leave the client exposed to the clutches of some UCIS/scam provider

  2. Isn’t this discussion on critical yield growth rate all very basic?

    Besides,the importance of the critical yield to match the estimated DB scheme pension has been considerably diminished following the scrapping of the requirement to annuitise at age 75.

    Clients are looking to transfer from DB schemes for a whole host of reasons and has always been the case, each transfer request should be judged and assessed on it’s own merits.

    In my opinion the FCA needs to revise it’s current stance, and the COB’s 19 rule that was introduced when client’s had no option but to purchase an annuity with their defined contribution fund at age 75.

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