International Investment asked a seasoned industry expert to spell out the key takeaways from the Financial Conduct Authority's just published final guidance for financial advisers setting out how they should provide advice on defined benefit (DB) pension transfers.
David White, managing director of Isle of Man-based QB Partners, picks out the surprising ignorance of the FCA about the cost of professional indemnity (PI) cover, its bid to clamp down on inappropriate promotion of pension transfers on social media, among other key points.
In essence, the finalised guidance for DB transfers has confirmed much of the rules that were already in place from 1 October last year, in particular in respect of non- contingent charging and the concept of abridged advice, said White.
The FCA will wish to clamp down on this but like much in the social media space, it is difficult to control.”
"Our experience is that the reduced number of advisers who are DB transfer specialists have adapted reasonably well to the introduction of the new rules, including non - contingent charging, which was arguably the most contentious aspect during the consultation phase.
"If advisers offer a clear standardised triage document and use abridged advice to filter out clients for whom a transfer is unlikely to be suitable, the new rules can work well. The other aspect is clarity, clients have to understand that once they commit to full advice they will be paying a fee whether or not the advice is to transfer."
White pointed out that the FCA has said when issuing the final guidance that it was not aware of the issues that advisers were facing with rising PI costs.
"This was surprising as I am sure it has been raised in the various consultations issues to the industry and the issue of PI costs has certainly been well aired in the industry press.
"If the remaining advisers do adapt well to the new approach and consumer outcomes start to improve in the FCA's eyes then PI costs may start to come down in the longer term as the FCA claims. The FCA have also set out some detailed criteria to make sure that the PI cover is adequate."
The guidance sets out a number of examples throughout of good practice and poor practice, which are designed to assist advisers on an ongoing basis in understanding the FCA's expectations.
There is a section about poor practice used by advisers on social media to "promote" pensions transfers, he added.
"The FCA will wish to clamp down on this but like much in the social media space, it is difficult to control."
In summary, White said that in the main though, the final guidance has confirmed rules that are already in place and which the now reduced number of advisers are getting used to.
"The number of transfers taking place is likely to reduce in the longer term, which is what the FCA intended and hopefully customer outcomes will continue to improve."
2.5% widely expected
Basic state pension increased 41% since policy inception