Contingent charging to continue, PTS to require level 4 and suitability reports for stay-puts – picking the bones out of PS 18/20
The FCA yesterday issued the long-awaited sequel to its March 2018 consultation paper CP18/7: ‘Improving the quality of pension transfer advice’.
In previous articles (see https://expertpensions.co.uk/2018/06/contingent-charging-the-devil-and-the-deep-blue-sea/) and in my own response to CP18/7, this writer has expressed the view that contingent charging represents an inherent and unacceptable conflict of interests. However, in its feedback, the regulator clarified that it does not intend to take further action on the matter at this time, stating:
‘The responses also confirm our initial thoughts that any causal link between contingent charging and suitability is difficult to prove. Charging models are only one of the potential drivers of unsuitability, and they need to be considered amongst other factors.’
The other main conclusions to come out of the paper were as follows:
- The regulator intends to take forward its proposal for all advisers providing pension transfer advice to have achieved a level 4 investment advice qualification by October 2020. Gap-fill will be permitted, however, there will be no grandfathering;
- Advisers will be required to take into account the proposed destination of the transferred funds, therefore giving advice on a ‘holistic’ basis. This includes where the advice is given to clients who consider themselves ‘self-investors’;
- The proposals regarding triage services are to be taken forward, meaning that in general terms advisers will be restricted to providing factual information and pointing out effective external sources of guidance;
- Advisers will be required to assess a client’s attitude to transfer risk as a separate matter to their attitude to investment risk;
- Advisers will be required to issue a suitability report and keep appropriate records even where the recommendation is not to transfer;
The regulator expressed its gratitude to all of those who had taken the time to respond. It also stated an expectation that if the proposals were successful: ‘consumers should be more likely to receive suitable advice about whether or not to transfer based on their personal circumstances. This will help them to make informed decisions and give them confidence in the advice that is being provided’.
The paper drew the conclusion that since the publication of the consultation, public, political and media focus on DB transfers does not appear to be reducing and demand remains high. However, PI insurers appear to be getting jumpy at the thought, with several firms withdrawing from the market on the grounds of being unable to secure cost-effective cover. In another surprising development, the regulator stated that following a review of the advice given to British Steel pension scheme members, ‘only’ 51% of cases could be shown to be suitable’ (poor though this undoubtedly is, I am gobsmacked that it was that high!)
The paper also stated that 18 firms had ‘voluntarily’ varied their permissions to remove the activity of advising on pension transfers, though some had subsequently regained them after changing their processes.
Am I the only one thinking leopards and spots?