The FCA has set out a package of measures designed to address weaknesses across the defined benefit (DB) transfer market. It includes steps to reduce conflicts of interest by banning contingent charging, as well as help for advisers who want to do the right thing and provide good quality advice to their customers.
The package also includes further support for customers who are considering whether to transfer out of a DB scheme, or who have transferred out. The FCA has also published the results of its ongoing targeted work looking at the advice firms have given.
The FCA will implement the ban on contingent charging in most circumstances. The ban will remove the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead. It will also help good advisers, who will often advise to stay put, to compete. To address ongoing conflicts, advisers must now consider an available workplace pension as a receiving scheme for a transfer and, if they recommend an alternative solution, demonstrate why that alternative is more suitable. This will help reduce the need and costs for ongoing advice.
The FCA will also implement proposals allowing advisers to provide an abridged advice process which will help consumers access initial advice at a more affordable cost. The abridged process can only result in a recommendation not to transfer or a statement that it is unclear whether a consumer would benefit from a pension transfer without giving full advice.
To assist financial advisers giving transfer advice, the FCA has issued a Guidance Consultation designed to help advisers put in place better processes to ensure consumers get suitable advice. The guidance identifies good and poor practice and will help firms identify weaknesses in their existing advice processes.
Suitability of advice
The FCA has also published an update to its ongoing targeted supervisory work, looking at the advice firms have given to those seeking to transfer out of a DB scheme. This has involved an industry-wide data collection from over 3,000 firms. The FCA provided detailed feedback to over 1,600 of these firms and as a result over 700 gave up their permission to provide pension transfer advice.
In addition to this, the FCA conducted in-depth reviews of the 85 most active firms in the market, who were responsible for 43% of transfers between April 2015 and September 2018. The aim of this was to identify those firms most likely to be providing unsuitable advice.
The FCA found that there has been an improvement in the suitability of advice given over time, with the suitability of advice rising from a low point of 47% in previous years to 60% in 2018. However, the FCA remains concerned at the number of files which either appeared to be unsuitable or where there were information gaps. The number of files where the advice appeared unsuitable was 17% and this remains unacceptably high.
Where firms have not met the required standards, the FCA expects firms to look at their past business and pay redress and where appropriate, the FCA will continue to ensure the removal of firms from the market.
The FCA is undertaking 30 enforcement investigations arising from concerns identified in the course of its programme of DB transfer work. Samples of advice for each firm under investigation have been reviewed and this will both inform its decision-making, and help to conclude those investigations.
While much of the advice reviewed by the FCA was suitable, the FCA recognises that consumers may have concerns about the advice they have received. In response, the FCA has produced an ‘advice checker’ which will provide customers with information about the advice they should have received. The FCA has also produced consumer information, which will be useful for customers who are considering transferring but have not yet made the decision to do so.
The FCA will work with other organisations over the coming months to ensure consumers have easy access to this information.
British Steel Pension Scheme
Some of the files reviewed by the FCA included advice given to members of the British Steel Pension Scheme. The FCA found that the percentage of unsuitable files was higher than those in the rest of the sample. 192 instances of advice to former BSPS members were reviewed within these phases of its work. Of these, 21% appeared to be suitable, 47% appeared to be unsuitable and 32% appeared to contain information gaps.
The FCA has already undertaken a number of actions designed to help those who transferred out of the British Steel Scheme including writing to almost 4000 former scheme members advising them how to complain, and holding events in Port Talbot.
Given these latest findings, the FCA intends to write directly to all c.7,700 former members of BSPS for whom contact details are available, who transferred out. This will help them revisit the advice they received, and to complain if they have concerns.
The FCA will maintain its focus on firms providing transfer advice and work looking at this sector will continue.