With around 75,000 authorised firms currently supervised by the Financial Conduct Authority (FCA), it is perhaps not surprising that many firms have never been visited by a representative of the regulator for any sort of audit or inspection.
However, firms need to note that, as an alternative to visiting firms, the FCA does pay close attention to information supplied in data returns. This is especially true of firms operating in areas that the regulator considers to be high-risk, and one example of an area that is definitely considered to be high-risk is pension transfer advice.
All firms operating in the pension transfer market should note that the FCA is likely to be collecting data from them during the coming year. The regulator’s intentions were revealed in a letter from FCA head of supervision Megan Butler to Frank Field MP, chair of Parliament’s Work and Pensions Select Committee.
Pension transfer advisers have already been warned to expect new rules to be introduced in the coming months, including:
- Where the transfer would involve a transfer or conversion of safeguarded benefits, the advice needs to be given in the form of a personal recommendation, and it will not be acceptable for firms merely to provide general guidance. Safeguarded benefits include: defined benefit (final salary) schemes, guaranteed annuity rates, deferred annuity rates, guaranteed basic annuities and guaranteed minimum pensions
- A removal of the formal rule saying that advisers must initially assume that any transfer will be unsuitable for their client. However, the paper still says that “it remains our view that keeping safeguarded benefits will be in the best interests of most consumers.”
- Expanded rules on how firms should assess suitability of advice. The FCA proposes that an assessment of suitability should encompass: the role safeguarded benefits play in providing the level of income a client expects or needs, whether the investments in the receiving scheme meet the client’s risk profile, and the way in which funds will be accessed by the client following any transfer
- A transfer value analysis must include a comparison showing the value of the benefits being given up
The FCA is particularly concerned about pension transfer advisers as firms operating in this area are failing to match the high standards for advice suitability seen for other product areas.
On the last occasion when it published statistics for this, the FCA said that only 47% of the pension transfer advice cases it had reviewed were suitable, i.e. a minority of the cases. 17% were graded as unsuitable, and in the remaining 36% of cases it was unclear if the recommendation was suitable. When considering the suitability of the recommended product and fund, the FCA believes that suitability was only demonstrated in 35% of these cases. 24% were unsuitable and 40% were unclear.
At a recent seminar organised by the Tax Incentivised Savings Association, Brian Corr, the FCA’s head of retail competition, said of pension transfer advice:
“I don’t think that there is currently a mis-selling scandal as such, but we have identified that there is a potential problem.”
Firms giving advice on pension transfers must ensure that each case is checked by a pension transfer specialist who has the skills and experience to determine whether the advice is suitable, and who holds a specialist pension qualification such as G60 or AF3.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.