Advisers braced for further FCA action on DB transfers


Advisers and providers are prepared for further regulatory scrutiny of defined benefit pension transfers after the FCA issued a warning notice related to 500 transfers worth £12.7m.

Last week the FCA published a warning notice against an individual after their firms advised more than 700 DB scheme members about the merits of transferring to a defined contribution pension.

As part of enhanced transfer value exercises, 500 of the DB members decided to transfer to a DC scheme, with a total of £12.7m moved.

However, the regulator says many of these members were at “serious risk of receiving unsuitable advice”.

Combined Financial Strategies chartered financial planner Jonothan McColgan says the messaging from the FCA that transfers are risky means further issues in this area are likely.

McColgan says: “When you look at things properly and you see what the FCA is saying about transfers, for anyone doing this properly it makes sense and is how you should be doing it already. So you start thinking: ‘Why are they telling me that? It is like teaching me to suck eggs.’ But it must be because there are a large number that are not doing it [properly].”

He adds: “It is making an area of advice very difficult and expensive for advisers, to jump through the hoops that are being put in place to protect people from being taken advantage of.”

Aberdeen Asset Management retirement savings head Gregg McClymont says: “On the one hand, when the Government introduced the freedom and choice agenda it explicitly stated that ‘It is your money’; and, on the other hand, clearly the regulator is understandably extremely keen to make sure transfers are in the interests of members. So it has a tough job in that respect.”

The FCA did not name the individual it had warned but says they had compliance oversight controlled functions at two authorised firms.

The regulator says in its warning notice: “The FCA considers that, between 1 February 2006 and 30 April 2009, the individual breached principle 6 of the FCA’s statement of principles for approved persons by failing to use due skill, care and diligence in carrying out the compliance oversight function.”

Specifically, the regulator said the individual failed to make sure the firms’ ETV advice process met its regulatory requirements.

According to the FCA, the indi-vidual failed to “identify obvious flaws in the ETV advice process which he should have identified either from his own review of the process or from the limited file reviews that he undertook.”

The individual also “failed to give any or sufficient consideration to the compliance of the ETV adv-ice process and of the advice given in his interactions with the pension advisers.”

The regulator also raised conflict of interest concerns. It said the individual did not identify or manage potential conflicts over commission from the provider that DB members were transferred to, or over payments to a pension adviser based on how much ETV advice business they wrote.

The FCA concluded: “As a result of the individual’s failings, DB scheme members were at serious risk of receiving unsuitable advice.

“The FCA considers it likely a significant proportion of the app-roximately 500 members who transferred from a DB scheme to a DC scheme would have decided not to transfer had they received suitable advice.”

The FCA also expects to consult early this year on updating the pension transfer redress methodology.

The regulator is concerned that the way redress is calculated – which dates back to the Pensions Review in the 1990s – no longer puts consumers back in the position they would have been in if they had stayed in the DB scheme.