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FCA urges caution over ‘streamlined advice’ on DB transfers

Man in lightThe FCA has raised questions over whether ‘streamlined advice’ can be given in complex situations such as defined benefit pension transfers.

In a guidance note today, the regulator has laid out how firms should approach simplified or focused advice, where the firm or client has limited the scope of the service.

The FCA has reiterated its position that suitability requirements cannot be watered down for recommendations within a more limited boundary.

The guidance reads: “Although streamlined advice services may be designed to deal with more limited client needs and may not, therefore, involve an analysis of all the client’s circumstances, any personal recommendation which is given to a client through a streamlined advice service must nevertheless be suitable…Offering a streamlined advice service, with a narrower scope, does not allow a firm to lower the level of protection due to clients.”

The FCA urges advisers to make sure that the nature of the products in its streamlined services are not incompatible with the needs and objectives of the clients it is promoting the service too.

Areas including the affordability of minimum contribution rates and the risks and volatility involved in the products should be considered, it says.

However, it says that some would be difficult to fit into any streamlined process because of their complexity, including DB transfers.

The FCA says: “Some financial products are…unlikely to be appropriate for a streamlined advice process because of the amount of information likely to be needed by the firm in order to make a suitable personal recommendation to a retail client. In general, we would expect that the more complex, risky, highly concentrated or illiquid the product, the more likely it is that firms will need more detailed information about the client’s broader portfolio in order to meet the firm’s suitability obligations.

“This is also likely to be the case where the firm is advising on transferring out of one product into another. This will be particularly important where the existing product is complex, such as a defined benefit pension transfer, and the firm will need detailed information about the client’s needs.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Yet at the same time the FCA are looking at capping fees for DB transfers and more alarmingly there is a suggestion of acting as a price regulator. I think I understand what they are saying here and agree but to say that you can give client’s full protection when advising on DB transfers within a certain price based on analysis on websites of IFAs on Unbiased…

  2. No DB Pension should be transferred without full disclosure, research and advice.
    To even consider trying to streamline this area of advice is irresponsible.
    Based on the very limited number of Pension Specialists able to complete this area of business, you would have thought the FCA would be visiting these advisers and insuring their process is fit for purpose.
    As always the gate will be shut well after the horse as bolted.

  3. 100% in support of the FCA here. The complexity of the transaction, the issues to consider, the move from secure benefits to risk benefits and a myriad other considerations mean that a comprehensive knowledge of the client’s circumstances, ATR and capacity for loss is essential. Streamlined advice has it’s place, but DB Transfer advice is not one of them.

  4. “… you would have thought the FCA would be visiting these advisers and insuring their process is fit for purpose.”

    Yes, I would have thought that, given the specialists that have recently volunteered to stop offering their services pending process reviews as previously reported here.

  5. FCA quotes:

    “…unlikely to be appropriate for a…”
    “…also likely to be the case where…”
    “…the more likely it is that firms…”

    Caveating everything is not helpful. It leaves firms in regulatory limbo, trying to second guess what the regulator really wants. Add in:

    “Offering a streamlined advice service, with a narrower scope, does not allow a firm to lower the level of protection due to clients.”

    means that firms are effectively left with an open liability if they go down that path. The result is that firms will be very cautious or not bother.

    Lack of certainty within a perceived climate of fear stifles competition.

  6. Advice on DB transfers cannot be simplified. Anyone who tries is playing with fire.

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