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Thin red lines: FCA fires final shots on DB pension transfers

Michael Klimes finds broad support for the proposals tinged with some disappointment

Regulator takes aim at suitability reports and qualifications but avoids ban on contingent charging in shake-up of transfer rules

After months of consultation, the FCA has finally given advisers a little more certainty over what it expects from defined benefit pension transfers.

The FCA has stood behind nearly all of the policies proposed in its initial consultation.

The watchdog will require pension transfer specialists to have the same qualifications as an investment adviser from October 2020 and has confirmed its guidance on how adviser firms can carry out triage services.

Advisers must now provide a suitability report regardless of the outcome and should explore clients’ attitudes to the general risks associated with a transfer, not just investment risks.

The requirement that pension transfer specialists have the same qualifications as an investment adviser has received significant support from financial planners, but a more mixed reaction has emerged over the regulator’s stance on triage.

A split remains over contingent charging too, as the FCA has opted not to impose a ban on the practice.

As the regulator puts its stake in the ground, Money Marketing looks at how its long-awaited rules might shape the future of transfers.

Questioning qualifications

The FCA says most respondents to the consultation agree with its proposal that all pension transfer specialists should hold the Level 4 qualification for providing advice on investments, as defined in the RDR, before they can advise on or check pension transfer advice.

They say while many transfer specialists already hold the investment qualification, it is necessary to understand the choice of receiving scheme and investments within it when transferring pension funds.

Law firm Clarke Willmott partner Philippa Hann says she cannot argue with the proposal.

This is because it makes sense to require even those advisers with historical qualifications to refresh and update that learning, alongside ensuring they consider the destination of a client’s pension funds. Hann says many of the problems she sees regarding questionable advice to transfer stem from confusion between multiple parties when they are all involved in the process, or where execution-only documentation has been used.

Keith Richards: Contingent charging must be preserved 

She argues firms that rely on a third party to provide advice to the client for the pension transfer process should have a robust contract in place with that third party.

This is to ensure there is direct contact with the client, so firms using third parties can control the information received by the client.

While its position on qualifications may have been welcomed, the market remains split on whether the FCA should have gone further to crack down on contingent charging and to clarify where advice starts and triage ends in DB transfer cases.

The FCA’s proposals in numbers

Cost in the first year for advisers to get additional qualifications

Cost across all firms of doing more stringent attitude-to-risk assessments for DB transfers

Upfront cost to a firm having to review whether its triage service is compliant with FCA guidance

Charges confusion

The FCA’s policy statement recognises opinions are divided on a contingent charging ban, with a slight majority of respondents arguing against it.

It says it is difficult to show a direct link between unsuitable advice and firms using contingent charging models, but will consider changes to rules where appropriate and consult on any new proposals in the first half of 2019.

The policy statement says those who argue in favour of banning contingent charging models do so as they see it as a cause of conflicts of interest.


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