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Percival: Pension transfer suitability reports still falling short

File image of laptop, phone and spreadsheetAdvisers need to worker harder to put relevant client details in suitability reports or they risk failing to meet the FCA’s expectations on pension transfers, says consultant Rory Percival.

In March, the regulator published a consultation paper and a policy statement that toughened standards on pension transfer advice.

These included the introduction of a rule to require all advice on the conversion or transfer of safeguarded benefits to result in a personal recommendation.

The majority of the remaining changes, which cover the transfer value comparator and the appropriate pension transfer analysis, will come into force on 1 October 2018.

Speaking at the Great Pensions Debate event in Port Talbot today, Percival says some advisers are falling short of the FCA’s new requirements.

He has seen evidence of poor practice in client suitability reports and fact finds in the past two months.

Percival says advisers need to ask if there are alternative ways to fund a client’s needs without touching their pension.

This is partly to comply with the FCA’s regulations on transfers but also because it is aware of how advisers can manipulate client objectives by putting words in their mouths.

Therefore, the regulator wants to be able to see a “real person” in the suitability report to be sure a client’s needs have been considered.

Percival said: “I saw a file where someone had done a pension transfer to build a conservatory but they had enough money in the bank account to pay for it.

He says: “Another example I came across is somebody used their DB scheme to fund their children’s education but that could have been funded by borrowing money rather than giving up that guarantee of a final salary scheme. The FCA will ask: was the suitability report that facilitated this believable?”


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Fair comment, it should be automatic when giving advice to consider if there is a better way. Another point that has been raised relates to better death benefits, and whether a life policy would be a better solution whilst keeping the guaranteed income, which could pay the premiums.

    • Julian Stevens 11th July 2018 at 2:56 pm

      Except that the cost of a life policy with a big sum assured for someone in later years would probably be astronomically expensive other than on a joint life second death basis.

      • If death benefits is a strong driver, it is essential to not only have an illustration on file showing the cost of the required level of life cover, but to compare cashflow outcomes of transferring to PPP, with retaining the DB and effecting the life cover.

  2. More self interest and publicity!

    • @ Peter Taylor… nothing could be further from the truth today. Some great insight into how the FCA view DB transfers and SRs in general and no self promotion at all. Rory presented, chaired a panel and openly answered a range of questions from IFAs, compliance officers and others in the room. Definitely a key contributor.

  3. Game Keeper Turned Poacher 11th July 2018 at 3:59 pm

    @ Peter taylor….a rather cynical view. There are some useful nuggets of wisdom (for free) that spill from such articles.

    However perhaps your advice process is perfect and not in need of an open mind and critical eye occasionally.

  4. “Except that the cost of a life policy with a big sum assured for someone in later years would probably be astronomically expensive other than on a joint life second death basis.”

    I take the point, Julian, but surely the justification for not doing so is simply to put a quote for the cover on file and record that your client made an informed decision that the cost was not worth paying.

    It is also very easy to question somebody in a way that leads to the answer you want to elicit – but if you do that you risk the possibility that somebody at FOS has seen Yes Minister:

    • And how do you demonstrate that your client’s choice was “informed”? Dave Stone’s suggested approach above seems the way to do it.

      Corner-cutting today will come back and bite you five years down the track.

  5. Julian Stevens 11th July 2018 at 6:44 pm

    At this rate, DPB transfers will be deemed suitable only for multi-millionaires whose pension benefits are little more than incidental to their overall standard of living.

  6. Julian Stevens 12th July 2018 at 1:58 pm

    If submitted anonymously for critical analysis by some hawk at the FCA, I wonder how well one of YOUR DPB SR’s would fare, Mr Percival.

    Maybe extremely well, in the wake of exhaustive and costly interviewing of the client, which might take hours and hours and hours ~ I have no way of knowing ~ but talking and actually doing are two different things.

    • Ray Adams of Niche said it takes the firm 20 – 25 hours overall to undertake a DB transfer review/advice, including cash-flow planning and including 3 hours to write a 90%+ personalised 10-13 page suitability report. Suggests what I say can be done cost-effectively.

    • @julianstevens Rory has been at the coalface prior to becoming an FCA Supervisor. I think we all have something to learn; certainly the debacle in South Wales and Yorkshire has highlighted there are shortfalls in advisers’ practices. Listen to what Rory has to say (and Mark Goold of the FCA), put in to practice and you should be fine. Ignore at your peril

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