Pension transfers and self investment
One big concern for those giving advice involves clients who are capable of self investment and want to make the investment decisions themselves. The FCA looked specifically at these clients, and makes clear in the latest consultation paper that advisers should take into account the proposed destination of the pension, even if they are not the ones making the investment recommendation. Where the destination is put forward by the clients themselves, the situation is no different, other than the fact advisers will have to make clear that the client needs to provide the necessary information about the scheme and its underlying investments.
It may well be the case that the transfer would prove unsuitable because of the proposed destination and/or investment. Where a transfer is unsuitable in principle, but not specifically in relation to the proposed destination, the adviser should explain the basis for the recommendation.
Where the transfer is unsuitable, specifically as a result of the proposed destination, the adviser should explain that a transfer may be suitable if a different destination for the funds was selected. This could cause issues with a client, but it is the only way to assess the pension transfer in a full and clear way. If this were not the case, the adviser could avoid full responsibility for the pension transfer – an outcome the FCA is trying to avoid.
Pre-advice issues
Many advisers operate a triage service as part of their defined benefit (DB) transfer advice process. This can be a good way to decide if a full review of the benefits is required before incurring cost and effort on the part of both the client and the adviser.
The purpose of triage is to give customers sufficient information about safeguarded and flexible benefits to enable them to make a decision about whether to take advice on the transfer or conversion of their pension benefits.
The FCA considers that triage can be useful to educate consumers on some of the basic features of different types of pensions and the transfer process, including the costs involved. It also agrees that, when used appropriately, triage can prevent consumers paying advice charges unnecessarily. It may also address some of the advice supply issues in this market, as it enables advisers to focus on clients with a realistic prospect of transferring.
In the FCA’s view, if triage is to be a non-advised service, it should be an educational process so consumers can decide whether to proceed to regulated advice. Firms can achieve this by providing generic, balanced information on the advantages and disadvantages of pension transfers. The FCA is clear that if an opinion on a transfer is given in the triage meeting, the adviser is likely to be straying into regulated advice. The firm should keep records of all triage that has been provided. To help ascertain what is suitable, the FCA has given examples of what it would consider to be triage.
