DB Pension Consultation Paper 18/7

The policy paper, ‘Improving the quality of pension transfer advice’, was released on the 26th of March 2018, which was the same date the 18/6 Policy Statement was released. No rest for the wicked hey?

The intended proposals

The purpose of the consultation paper is for the FCA to inform you of their intended proposals and for advisers to have the opportunity to give their thoughts and comments. The proposals that the FCA are consulting on include:

  • Raising the qualification levels for pension transfer specialists (PTSs) to require them to obtain the same qualification as an investment adviser.
  • Advisers exploring clients’ attitudes to the general risks associated with a transfer, in addition to their attitude to investment risks.
  • Guidance to illustrate how firms can carry out an appropriate ‘triage’ service (an initial conversation with potential customers), without stepping across the advice boundary, by providing generic, balanced information on the merits of pension transfers.
  • A requirement for firms to provide a suitability report regardless of the outcome of advice.
  • Whether to intervene in relation to charging structures. This could include introducing a ban on contingent charging, which is when a fee for advice is only paid when a transfer goes ahead.
  • To remove TVAs and instead require firms to complete a TVC and APTA.

Our thoughts?

Guidance around DB pensions can only be a good thing, especially after the British Steel scandal that has recently occurred.

Raising the level of qualifications for PTSs is sensible. To us, anyone who is a ‘specialist’ of something should have the same, if not more qualifications than those who aren’t. They are providing advice on a topic that is so sensitive, it is essential they have the correct knowledge and skills to be able to deal with the situation effectively.

Guidance on triage services is always welcomed as it is a tricky to know at what point what you say becomes advice. The FCA have stated that the information given needs to be generic, it can have nothing to do with that client. A suggestion raised was to give the client a guide and some videos to watch which we think is a good idea. It is generic and it is not tailored to the client. On top of this, here should be no advice given, no meetings, no communications with the individual apart from that guide. The guide will allow the client to make their decision which is the most important aspect. The client is the one who needs to make the decision of the investment.

What advisers may think is not advice, the individual might and therefore it is hard to provide an individual with a Triage service. What we think would be a good idea is to get the individual to sign a disclosure document that that details the guides and videos are not advice given and the client should not see it as advice.

Advisers exploring their client’s attitude to the general risks associated with the transfer should already be explored. The adviser should understand how the client feels about the risks associated with a transfer, not just their attitude to investment risks. Advisers should know how their client feels and if the client understands what impact it will or may have on them when they give up their benefits.

It is hard for advisers to know when the information they are telling their client crosses the boundary into advice. We think it will be beneficial for advisers to receive guidance surrounding this.

In regards to the proposal of the suitability reports, we think that giving one for a negative recommendation is another sensible idea. Sometimes having the information to read in front of you exampling why the recommendation is not suitable for you is more helpful than when you are just being told. Also, if any issues were to arise later in future disputes, there is more evidence of you not supporting the recommendation.

Lastly, in terms of the charging structure proposal, it’s hard to say how this would work in practice. We are all for the FCA changing the ‘gaming’ system and improving the opinion of the financial services but this seems like it will be hard to supervise effectively. It would also make it hard for those who cannot afford financial advice but need it to go without. Maybe this isn’t for the FCA to deal with but there should be some support at a Government level to allow those who cannot afford financial advice to be able to receive it.

That being said, if you are a financial advisor and have a potential solution to this issue then ideas and feedback would be most welcome. Correspondingly, in the financial services sector, it is no secret that, in order to promote your services to a wider audience, you often need the support of a financial marketing expert. You can learn more about marketing financial concepts and solutions by visiting the LeadJig website.

Until the 1st of October 2018, TVAs will still be required to be completed. However from that date, it will be mandatory to complete a TVC and an Apta. The issue with a TVAS is that clients aren’t purchasing annuities any more, they want to enter drawdown so the comparison to the purchase of an annuity. The TVAS are being replaced with the TVC which will compare the transfer value offered with the estimated value needed to replace the client’s DB income through the purchase of an annuity. Again we are comparing it to an annuity. But what it would be compared with instead of an annuity? Well, we aren’t really sure.

The FCA do not want the TVC to become the sole focus of the advice and this is where the Apta comes in. the Apta will be much more personalised to the client and should include personal details such as marital status, health, client objectives and needs which will help to position the TVC in relation to the client’s individual circumstances.

What should you do now?

Well, for one, if you are a pension transfer specialist then I would prepare myself to take extra exams as it seems to be the general consensus that you should hold the same qualifications as advisers.

If you have any comments or suggestions in relation to any of these proposals, the discussions for the consultation paper are open until the 25th May 2018. So, get them in by this date!

To do this you can either fill out the online response form here:

you can also:

  • Email – cp18-07@fca.org.uk
  • Or if technology isn’t your strong point, you can write to – Sandra Graham and David Berenbaum, Strategy and Competition Division, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS.

They will consider the feedback they are given and publish the Policy Statement in the Autumn 2018.