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FCA drops contingent charging ban as transfer specialists forced to take investment exams

Spotlight on charges 700x450.jpgPension transfer specialists will have to get the same qualifications as an investment adviser in addition to the existing specialist qualification, the FCA has ruled today.

After months of consultation, the regulator has produced new rules and guidance aimed at improving defined benefit transfer advice.

While it has stopped short of a contingent charging ban, it is raising the qualification level for pension transfer specialists.

All pension transfer specialists will be required to hold a specific qualification for providing advice on investments by October 2020 so they can “identify whether a proposed pension scheme and investment solution is consistent with the client’s needs and objectives.”

Advisers will need to understand their client’s general attitude to the risks that go with a transfer, and not just how they feel about investment risks though, the FCA stressed.

Advisers will also have to provide a suitability report even if the recommendation is not to transfer, the FCA has confirmed.

The regulator will not impose a contingent charging ban at this stage, it has said.

While those responding to its consultation expressed fears about the impact on access to advice if contingent charging was banned, the regulator added that “responses to the FCA’s consultation confirm its initial analysis that the evidence it has seen does not show that contingent charging is the main driver of poor outcomes for customers.”

FCA executive director of strategy and competition Christopher Woolard says: “We expect our interventions to improve the quality of advice which will help to reduce the number of complaints against advisory firms.”



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. How many transfer specialists currently don’t have the qualifications to give investment advice? All the ones I know already do.

  2. “responses to the FCA’s consultation confirm its initial analysis that the evidence it has seen does not show that contingent charging is the main driver of poor outcomes for customers.” Responses from whom? If such responses are from advisers saying things like “Oooh no, I’d never allow the prospect of not getting paid anything if I recommend not transferring to influence my advice, even though, in addition to the time spent on my initial analysis, I’ll have to write a lengthy SR to justify my conclusion”, one has to wonder if that’s really the case. Human nature suggests not. After half a dozen cases in a row on which the adviser has been forced to conclude that the client shouldn’t transfer, he (or his employer) would surely be thinking “Hang on a minute…..”

    Personally, I don’t advise on DPB transfers but I don’t mind admitting that if I did, faced with that kind of conflict, I’d find it pretty darned difficult to remain scrupulously neutral.

    • So you question your own integrity?

      • I’m just saying that, like for many others, it would pose a conflict of interest.

        As others have posted, for some clients, non-suitability (of transferring) can (probably) be determined (and even written up) quite quickly for just a nominal fee or, if one isn’t charged, perhaps an only modest loss for the adviser.

        But what about cases on which suitability vs. non-suitability isn’t so clear cut or where the client is, from the outset, keen on transferring and a full and time-consuming analysis is required to arrive at a properly considered verdict? A few of those types of case on the trot, with no upfront advice charge being levied would surely invoke at least some measure of conflict?

        I listened to Money Box this morning and the opinion of a representative from PIMFA was that a fee paid for advice resulting in a recommendation not to transfer is money down the drain. I couldn’t disagree more. My firm policy since 2002 has been not to provide advice on anything to prospective new clients without at least a reasonable contribution towards the cost of providing it, and those who can’t or won’t pay are probably not the sort of people I want as clients. A partial upfront advice fee cannot totally eclipse my natural wish to take on new, long term clients but at least it’s a step towards neutrality. The world is not a black and white place.

        But hey, everyone is entitled to their opinion.

  3. I’m with grey area

    You would be able to do investment business per se anyway.

    It would be easier if the FCA made it clear just what exams are needed ie AF3 has gone but some still question whether that was a suitable replacement for G60 and indeed now ask the same of AF7 & AF8

  4. The requirement to provide a suitability report to not transfer a DB pension will mean people with DB CETVs worth more than 30k will now have to pay a much higher fee to receive advice. Also i cansee a very very significant number of transfer specialists refusing to go as far as advice. This will mean people lose access to advice.

    • Which means that, for the vast majority of people for whom staying in the DB scheme is the best answer, it’s the right outcome.

      Meantime, advisers are freed up to concentrate on cases where clients are more likely to be potentially suitable for transfer and are prepared to pay. Less frog-kissing is a good thing.

      • I agree completely. For the great majority of people who either can’t (because they don’t have the means) or won’t (because they refuse to understand that giving advice costs money) pay a fee upfront, staying put is highly likely to be their best option.

    • This isnt a new requirement, COBS 19.1.9 08 June 2015 already required a suitability report to be issued where the advice was not to transfer.

      ‘If a firm proposes to advise a retail client not to proceed with a pension transfer, pension conversion or pension opt-out, it should give that advice in writing.’

      If you have transacted these and not issued a report, you might want to let your PI insurers know!

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