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FCA proposes changes to update pension transfers advice process

21 June 2017

The Financial Conduct Authority (FCA) has published new proposals on pension transfers advice, recognising the inadequacy of TVAS, requiring transfer advice be provided as a personal recommendation and for “appropriate transfer analysis” to be undertaken.

The paper also proposes removing the existing default guidance that all advice on pension transfers should start from the assumption that a transfer is unsuitable.

It is proposing changes to the rules on use of transfer value analysis (TVA) arising it said from “concerns” on current use by adviser firms and TVAs “limitations” post pension freedoms. See our separate article on TVA here.

The new rules are contained in Consultation Paper CP17/16 , which outlines the FCA’s expectations of advisers and pension transfer specialists to ensure that consumers receive advice which considers all relevant factors. They build on an FCA alert on advising on pension transfers, which was published in January 2017.

The Regulator proposes requiring transfer advice to be provided as a personal recommendation, which fully reflects the client’s circumstances and provides a recommended course of action, ask well as replacing the current transfer value analysis (TVAS) with a comparison to show the value of the benefits being given up.

The proposals also include:

• Updating the guidance on assessing suitability when giving a personal recommendation to convert or transfer safeguarded benefits, so that advisers focus on whether a transaction is right for a particular individual

• Introducing guidance on the role of a pension transfer specialist.

This new stance, the Regulator said, acknowledged that while its position remained that keeping safeguarded benefits will be in the best interests of most consumers, “the introduction of the pension freedoms has altered the options available and for some consumers a transfer may now be suitable when it wasn’t previously.”

In proposing to remove the default guidance on suitability, so no longer requiring a default assumption to be made by an adviser, the Regulator added that “an assessment of suitability should focus on whether a transaction is right for the individual and should be assessed on a case-by-case basis from a neutral starting position.” As such, the advice process will still need to demonstrate that the transfer is in the best interests of the client.

Additional guidance

The Regulator is also proposing additional guidance is made available to help in the assessment of suitability and to clarify the FCA’s expectations.

This guidance will make clear that in order to provide a suitable personal recommendation an adviser should consider the following elements:

  • the client’s income needs and expectations and how these can be achieved, the role safeguarded benefits play in providing this income and the impact and risk if a conversion or transfer is made
  • the specific receiving scheme being recommended following the transfer and the investments being recommended within that scheme to ensure that it is appropriate for the risk profile of the client
  • the way in which the funds will be accessed, either immediately or in the future, including follow-on arrangements
  • alternative ways of achieving the client’s objectives. For example, there may be ways for a client to provide death benefits which can be funded from income rather than by a lump sum funded by a pension transfer, and which does not carry so much risk
  • the relevant wider circumstances of the individual.

The regulator said that taken together as a package, “the proposals will ensure that advice fully takes account of an individual’s circumstances so that consumers make the right decision for them.”

Christopher Woolard, executive director of Strategy and Competition at the FCA added: “Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.

“Our new approach should better equip advisers to give the right advice so that consumers make well informed decisions.”

You have until 21 September 2017 to comment on the paper. The online response form can be accessed here.

Rachael Griffin, financial planning expert at Old Mutual Wealth, welcomed the paper saying it took “an important step in modernising defined benefit transfer advice”.

“The paper appears to recognise that, with pension freedoms now over two years old, the environment is different and the advice process must look at issues on a case-by-case basis. The detail that may need to be included in any transfer analysis reports will need to reflect this, and in many cases they already provide a significant amount of what the FCA is highlighting should be needed in the future.”

She added that the FCA’s requirement for advice to be treated as a personal recommendation was welcome also.

“It is what should be taking place at present by determining what is in the client’s best interest. It’s also positive that the paper takes steps to provide greater clarity as to what should be included in that advice process, such as consideration of other financial planning solutions to meet a client’s wider objectives.”

However, she added, that there would “undoubtedly be work needed on some of the detail included in the consultation to deliver the right outcomes for both clients and the industry alike”.

Rachel Vahey, product technical manager at Nucleus, also welcomed FCA’s consultation, saying the current regulatory framework was “past its sell-by date”.

Vahey said: “Whatever emerges needs to be a robust system designed for the long-term, not just in response to these extraordinary times. Good financial planning is at the heart of defined benefit transfer advice, but the regulatory framework also needs to be fit for purpose. Updating the transfer value analysis (TVAS) requirements is a necessity to bring it into the 21st century and we welcome the fact the FCA is looking to replace this with something more focussed.

“Every person’s circumstances are unique and advice has to be tailored for the individual, so it is good to see support for the move to make DB transfer advice a personal recommendation.

“Regulated advice should reflect the myriad of options shaped by a person’s objectives and the current financial planning environment.”












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