Suitability reports for negative recommendations
The proposal that suitability reports be required in all circumstances is quite interesting, and one that could be a really good change for consumers. Rules do not currently require firms to provide suitability reports when they give a recommendation not to transfer. The FCA is now proposing that firms provide a suitability report regardless of the outcome of advice. This will be a real benefit, because those who wanted to transfer only to be told that it was not suitable would be able to read through the report in detail. The hope is this would reassure and educate them about the reasons behind the recommendation and the benefits they currently have in their DB scheme.
Charging discussion
The last section of the consultation paper didn’t involve proposals. Instead it offered a discussion about the way in which pension transfers are charged for. This has been an ongoing debate in the financial services industry for many years. There is no right or wrong answer, and I think the FCA realises this. Nonetheless, its focus remains on protecting consumers from harm. To this end, the regulator discusses the potential benefits, or harm, of each of the different transfer charging options.
The discussion focuses on the fact that the FCA believes that pension transfer advice is different to other types of advice, such as that focused on investment alone. It also asks whether this has an impact on suitable charging structures.
The watchdog highlighted a number of reasons why transfer advice has this special status, including the following:
- In most cases, the right advice is to do nothing at all;
- Pension transfer advice is mandatory for transfers over £30,000;
- There is no going back once the transfer has occurred;
- The advice will impact on the long-term outcome for clients because it is in respect of their retirement income.
Although no recommendations were given, the FCA has made it clear it would consider intervening in this area if it ultimately believes it to be necessary.
There are many options available to protect consumers from harm, and although the FCA mentions the possibility of a ban on contingent charging, this wasn’t the only option discussed. The regulator clearly wants to ensure other changes contained within the consultation paper and the previous policy statement are taken into account before any decisions are made.
One area mentioned is that of dealing with adviser remuneration packages that encourage recommendations to transfer. Anything that can be seen to encourage transfers will be something that the FCA will take a very close look at.
Conclusions
The industry didn’t necessarily expect a further consultation alongside the long-awaited policy statement, but in hindsight we should not have been surprised, given the weight of pension transfer issues in need of review or updating. Nonetheless, it still feels like the FCA is making tweaks around the edges rather than tackling the issues head on.
