Are you providing good outcomes for your clients? How do you know for sure? And if not, how can you do better? These are the questions you’ll have to ask yourself in the wake of the FCA’s most recent guidance around pension transfer advice.
On Friday, the FCA released the much-anticipated policy statement – the next step in its unrelenting work to improve the pension transfer market. With it came the news that 30 firms are now in FCA enforcement as a result of defined benefit transfers and more calls from acting CEO, Chris Woolard, for standards to improve.
Despite this, it wasn’t all doom and gloom. The latest thematic review showed that, based on files from 2018, 60% of advice was deemed suitable. This is a clear improvement in quality from previous years. But naturally, the FCA want to see a much higher figure and there’s now no room for complacency.
Here are some of the main takeaways from the FCA’s recent publications:
1. Enhancing standards
A key finding from the FCA’s work is the high number of files with ‘material information gaps’. So while advice may well be suitable, the evidence isn’t there to back it up. Where firms review a file where there are gaps, they should take steps to obtain the missing information, which will lead to a higher proportion of files demonstrating suitable advice. Equally, the Scheme Data template (in the guidance consultation) is also a useful tool to ensure the firm has all relevant details about the scheme when providing advice.
The guidance consultation includes lots of examples of good practice, in areas such as gathering personal information, demonstrating competence and managing conflicts of interest. Review your procedures against the guidance consultation and make amendments where appropriate to plug the gaps in your policies and procedures. This analysis should lead to enhanced standards.
2. Focus on workplace pensions
There’ll be a lot of focus on the contingent charging ban. However, the FCA’s strategy to address conflicts of interest doesn’t stop there. Advisers are now required to demonstrate that a receiving scheme is better than a client’s workplace pension and include a Workplace Pension analysis in the Appropriate Pension Transfer Analysis. So, make sure you’ve got the processes in place to consider workplace pensions, taking into account the client’s individual circumstances and objectives, and be prepared to evidence why the recommended scheme is better for the client.
The FCA has said its view is that many customers would not benefit from an ongoing advice service. There are certainly charge caps on Workplace Pension schemes and this can have a positive impact of future fund values. However, the Regulator has previously mentioned the importance of ongoing reviews with Pension Switches and MiFID II brought in a requirement in relation to periodic suitability assessments.
3. Prepare for an uptick in complaints
The FCA’s new ‘Advice Checker’ document is designed to help clients assess whether they’ve received poor advice. Combine that with the likelihood that claims management companies (CMCs) will use the document to try and encourage some clients to make a claim, and you’ll likely see an uptick in complaints.
You’ll need to be ready for it. That means you’ll need adequate resource and complaints handlers will need to be trained sufficiently. Where there are ‘material information gaps’ on file, it may be that the firm needs to go back to the client to obtain information prior to making an adjudication.