Jason Whyte, Associate Partner, Financial Services, EY comments on the FCA’s final rules to improve the quality of pension transfer advice.

5 October 2018

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Today’s update from the FCA is a measured response to its concerns about the market.  All sides want to ensure that consumers’ considering a transfer get a balanced perspective and equal quality of advice on both whether to transfer and the target scheme.  However, the report may not end the debate on contingent charging. Ultimately we need a charging structure that enables everyone to receive quality advice, irrespective of their wealth or level of pension benefit.

“The proposed changes to advice seem proportionate and should reduce the risk of poor outcomes without stifling the market. One major remaining area of concern is how providers of Professional Indemnity (PI) cover will react; PI premiums have risen significantly since the FCA’s review, with some IFAs reporting that they can no longer get cover at all. We will have to wait and see whether PS18/20 gives the PI underwriters enough confidence to restore some normalcy to the market.

“The changes update the qualification for Pension Transfer Specialists and additionally require them to hold an investment qualification. The FCA has today confirmed it requires the advice process to consider the risks and benefits of both the transfer and the destination of the funds. In particular, advisers will be required to consider the full range of risks without overplaying scheme funding risks or the level of Pension Protection Fund coverage.

“The FCA also plans further guidance on the ‘regulatory perimeter’ around how far a firm can go in triaging customers who might not be suitable for a transfer before it becomes advice. But this looks like it may need further refinement as what constitutes advice depends not just on what is provided but the status of the firm or person providing it.

“Contingent charging – the option to make the adviser’s fee dependent on a transfer happening - is still allowed. This has been a controversial area of debate but the FCA found no clear evidence that it harms customer outcomes. It also expressed concern that some customers might not be able to access the market if they had to pay whether they transferred or not.”