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.”