While eyes may have been turned to the Spring Statement this week, a far more significant announcement for advisers looms large on the horizon: what the FCA plans to do about the evolving defined benefit transfer market.
By the end of the month, we will have a final policy statement from the regulator.
Essentially, this will outline what rules it intends to change, if any, and what additional guidance it can give to clarify exactly what it expects from advisers.
I’m sure responses to its consultation will have been vociferous, but also wide-ranging. How does the regulator even begin to juggle the competing interests of freedoms advocates and consumer protection groups, let alone the minute detail of transfer analysis calculations and everything else IFAs would love a steer on?
It is a real shame that some of the best solutions to stop the most egregious transfer harm actually lie outside of the FCA’s powers. Nobody wants dodgy introducers or lead generators funnelling pre-packaged client banks to IFAs so they can transfer them into an esoteric fund the introducers are already directors of, paying the IFAs a marketing fee for the privilege.
However, those firms are not regulated, so the FCA has precisely zero power to stop that practice. Where the unauthorised firms pretend to give regulated advice, that is an infringement the FCA can stamp out, and it says it will, but that is playing around the edges.
The FCA also cannot regulate products themselves without a dramatic increase in resources, so is powerless to monitor some of the junk funds transferees end up in.
A potentially more feasible idea, but also highly impractical, would be to collect more granular detail in Gabriel returns on the precise funds into which DB transfers are made. However, this would surely attract the ire of advisers, who regularly complain that the forms they must fill in for the FCA are already quite long enough, thanks very much.
The same goes for so-called ‘phoenixing’, by which advisers at firms who have failed due to DB transfer or other liabilities wind the practice down only to reappear at another firm in the fullness of time.
No matter how good the FCA’s authorisation process – which it should no doubt tighten up as it releases the policy statement – some rogues will still slip through the net. I have seen directors listed under multiple Companies House accounts, for instance, ostensibly to prevent following their career history easily.
But none of this means that the FCA can’t illuminate the path for DB transfer advice more. Even clearer guidance on precisely what pitfalls IFAs should avoid can’t come soon enough. Both the market and consumers depend on it to make sure thousands of pounds in life savings aren’t wasted unnecessarily.