A letter the watchdog sent to product providers last week about their defined benefit transfer procedures has inspired a number of conflicting interpretations, Money Marketing can reveal.
In a Dear CEO Letter sent to the heads of major providers, the FCA lays out how providers should treat customers fairly in the context of DB to defined contribution transfers.
It explained the watchdog has now completed its review of pension product providers and identified the key drivers of harm in the market.
The letter went on to say what product providers need to consider when designing, marketing and providing pension products.
Specifically it says product providers should identify negative trends, such as a high volume of transfers from a single scheme over a short period or customers transferring out of new DC arrangements soon after transferring from DB schemes.
Furthermore it adds: “We [the FCA] expect you [product providers] to have appropriate measures in place to ensure that products are being recommended responsibly and appropriately, in accordance with the Treating Customers Fairly Principle.”
Yesterday in response to the letter Sipp provider Intelligent Money announced it was pulling out of the market and it would no longer accept DB transfers.
Money Marketing spoke to a number of other product providers who say they are not pulling out of the market but have raised concerns about the implications of the letter and want further clarity from the FCA about it.
Intelligent Money chief executive Julian Penniston-Hill says: “I was absolutely shocked by the possible legal interpretation of the letter and I called a board meeting over the weekend in light of it.
“The conclusion of that board meeting was this is a change in direction from the FCA. The letter affects platforms that have their own pension or Sipps, life insurers, discretionary fund managers and Sipp providers.”
He adds: “Where providers were quite rightly responsible for suitability of investments (for a pension scheme), the Dear CEO letter extends responsibility for the suitability of the advice itself. Quite obviously no provider is going to take on any liability for advice given by unconnected third-party financial advisers.
“In such a scenario, providers would have no alternative but to cease accepting business due to the liability that arose from [unconnected and/or third party] external financial advisers. This could be the end of independent financial advice.”
Novia chief executive Bill Vasilieff says he disagrees the FCA is asking product providers to be responsible for the suitability of advice but he understands the interpretation.
He says: “One of the things that is causing concern right now is people who never had money are suddenly getting it through pension freedoms and are making bad decisions through introducers. But that is not to say all DB transfers are bad.
“We will continue to accept transfers and we think transfers are attractive and that has not changed.”
Reacting to the letter Aegon pensions director Steven Cameron adds: “The FCA has already provided extensive rules and guidance to advisers and is now looking at the role of providers.
“Some of the Dear CEO letter rearticulates broader provider responsibilities with a particular focus on DB transfers. However, there are other aspects where the FCA looks to be expecting more from providers.
“We will not be stopping transfers on the basis of this letter but will be working with the FCA to understand what it wants.”
The FCA was not able to comment in time for publication.