The FCA has published its Finalised Guidance for financial advice firms undertaking pensions transfers.
The Regulator said it’s view remained that “it is in the best interest of most consumers to stay in their DB pension”.
“Where an individual seeks advice to transfer, we expect firms to give advice that is suitable and appropriate for their needs and situation.”
It was aware, it added, that “many firms are trying to do the right thing for their clients but do not realise they may not be acting in their clients’ best interests. We want to support those firms trying to give suitable DB transfer advice to consumers.”
The Finalised Guidance, which is non-Handbook guidance, largely follows the draft document published in June 2020, is designed to help firms understand the Regulator’s expectations when advising on pension transfers and conversions.
It focuses in particular on the processes firms need to put in place to give suitable DB transfer advice as well as helping firms “to identify any weaknesses in their existing processes so that they can put into place an appropriate framework for managing and delivering suitable advice.” This includes good and bad practice examples.
Alongside improving the suitability of DB transfer advice and the outcomes for individual consumers, the FCA said the guidance aimed to give advisers “the confidence to give good advice, so that they and their professional indemnity insurers can see the benefits of fewer instances of unsuitable advice, making the future pension transfer advice market more sustainable.”
The Regulator added: “Staff at some firms appear to think the problem of unsuitable advice lies elsewhere and not with them. Firms giving DB transfer advice should read this [guidance] to help ensure that they are giving suitable advice to consumers.”
Firms were referred to the FCA’s Defined Benefit Advice Assessment Tool which sets out how the FCA reviews DB transfer advice.
The FCA aid the tool “sets out the key factors to consider when checking the suitability of advice and disclosure. We recommend that firms use it as it can help them understand how we assess suitability.”
Commenting on the document, Andrew Tully, technical director at Canada Life said the finalised guidance gives advice firms “a clear steer what the FCA is expecting around defined benefit transfers.
“While many people will be better off remaining in their defined benefit scheme there are some specific situations, such as those in ill-health or heavily in debt, where a transfer will be the best outcome.
“The FCA also highlights the inconsistency of record keeping by advisers and provides guidance on the processes advisers may want to put in place so they can establish whether the DB advice is suitable or not. It is right that we have strong controls in place around this complex part of the market but also recognise there is a demand and need for advice.
“ This guidance will hopefully help ensure we continue to have a functioning DB transfer market while reducing the instances of poor outcomes for consumers.”