The Financial Conduct Authority has published a support document to help financial firms support vulnerable consumers when providing pension transfer advice.
The watchdog said consumers’ personal circumstances may mean they have characteristics of vulnerability that impact their decision making and firms should create an environment where consumers feel they can disclose their needs and provide suitable support.
According to the FCA, consumers with defined benefit schemes (DB) may be in the following circumstances:
- Worried about the financial situation of their DB scheme’s sponsoring employer
- Concerned about the solvency of their DB pension scheme
- May have heard their DB scheme is at risk of going to the Pension Protection Fund
- May be in serious financial difficulty due to the cost of living
The FCA warned that vulnerable consumers in these situations may also be susceptible to scams or fraud and has published a list of warning signs for firms to look out for. These include:
- Appearing overconfident in their decision making despite low knowledge of pensions or investments
- Experiencing distraction from personal life events
- Experiencing financial dissatisfaction
- In cognitive decline or socially isolated / lonely
- Appear in a hurry or agitated about arranging the pension transfer
As part of the new Consumer Duty requirements, which include new rules for the treatment of customers in vulnerable circumstances, firms should assess their approach to vulnerability for pension transfer customers and ensure that they are meeting the requirements, the FCA said.
This includes identifying when customers are likely to approach them for advice and design and deliver support to meet their needs. In a two-adviser model, firms should consider the customer’s particular circumstances and whether there are any indications the customer has been coached or influenced to transfer. In some cases, it may be appropriate to have joint meetings with customers requesting a pension transfer or advice to disclose information where they see clear indicators of vulnerability.
In addition, the FCA said firms should encourage customers requesting a pension transfer or advice to disclose information where they see clear indicators of vulnerability and tailor communications to retail customers, considering their different characteristics, including those of vulnerability.
Where firms deal with customers based overseas, they should also consider whether their customers are susceptible to scams or fraud and look for the warning signs.
It noted that firms that do not have adequate systems and controls in place to support vulnerable consumers may be unable to recognise and respond to vulnerability in line with customers’ needs or recognise how characteristics of vulnerability might impact a consumer’s behaviour or decision making. It said firms can mitigate the risk through the following points.
- clearly and fairly explain how the features of DB and DC schemes may assist consumers with characteristics of vulnerability
- respond flexibly to consumers’ needs – for example to change the channels for advice from online to face to face services
- recognise that consumers in financial distress may need financial guidance and signpost to other organisations that can help them such as MoneyHelper, and not transfer advice
- consider when characteristics of vulnerability, like financial literacy, might impact the firm’s ability to assess attitude to transfer risk or fact finding.
The FCA said it will continue to monitor how firms are meeting its expectations and take swift action where it sees malpractice.
