Why are equity release and later life mortgages in the FCA spotlight?
The FCA highlights the ongoing risk of poor outcomes for later life mortgage borrowers
David has over 15 years of experience across financial advice, retail banking and mortgage sectors, both as a regulatory consultant and now Technical Director for TCC and for many years as a Senior Associate at the FCA. David brings deep and broad first-hand regulatory experience and has in-depth knowledge of financial advice processes, control environment reviews and regulatory due diligence.
He has extensive experience writing and delivering training on file reviews, more specifically defined benefit pension transfers.
D: The main issue with the Defined Benefit Transfer (DBT) market is in relation to advice on the British Steel pension scheme. Specifically, a proposed customer redress scheme the FCA is consulting on. Over 300 firms are potentially going to be involved in this scheme, so it’s a massive area for this market.
Outside of the British Steel Customer Redress Scheme, the FCA does appear to be reducing its work on DB Transfers. I’m sure those reading will be aware of the extensive work the FCA has done in this area for thematic reviews over the past few years. No reviews are currently planned, and the FCA is continuing to look at the firm’s regulatory returns and work with firms they have already identified concerns with.
D: The main reason is the FCA has identified high volumes of unsuitable advice in relation to the British Steel pension scheme. The work they have done (and there’s been a lot) over the past few years on DB transfers identified an estimated 46% of advice in relation to DB transfer on the British Steel pension scheme being unsuitable. That is compared to an estimated 17% for other schemes. There are approximately 8,000 transfers from the British Steel pension scheme, so a lot of consumer harm which is why the focus is there.
D: Definitely. The consumer redress scheme currently being consulted on, closed at the end of June.
D: It’s a great question. The key aspect of a consumer redress scheme is that the onus is on firms to review all advice given on a scheme, in this case, the British Steel pension scheme. If the consultation leads to a policy statement, all firms will have to go back and review its advice – regardless of whether a client has opted-in.
D: Absolutely – a lot of people assume it’s going to go ahead, and the FCA is likely to put out a policy statement later in the year with the consumer redress scheme to go live in 2023. Whilst nothing has been confirmed, it certainly appears to be the direction of travel.
D: I think the industry issue to be aware of is that DB transfers are highly complex advice. The work the FCA has done previously confirms the concerns they have in this area. So, it’s important to keep giving good advice and ensuring that the systems and controls are appropriate to do so.
If looking at other schemes, I don’t see the FCA having any other issues, and it’s unlikely that others will go through a consumer redress.
D: Again, that’s a great question. To review advice, you don’t need a specialist qualification. However, I would always recommend having contractors who have the relevant FCA qualifications, such as the AF7 or AF3 qualification.
Ultimately DB Transfer advice is highly complex, and the more knowledgeable the contractor is, the better the outcome will be in relation to the review.
D: Yes, very much so. Everyone talks about being G60 qualified, but AF3 and AF7 are the more recent qualifications.
D: I’ve worked on a lot of projects with contractors and think it’s fair to say they mainly review advice, look at advice files and assess if the advice was suitable or not and identify if additional information may be needed. They can also add value in terms of customer contact exercises.
Many firms don’t get involved in customer contact – it’s not part of their business as usual, but for a redress scheme, you always need to contact customers and make sure the wording is correct so that is another service contractors can provide.
How do you think, as a pension specialist or technical director, TCC can help specifically in this area?
D: I’ve been at TCC for five years and have worked with many of our contractors, and we have hundreds of DB contractors on our panel. The main thing you get with TCC is experience. Contractors who have reviewed advice files for many years and have been involved in significant projects directed by the regulator.
So, you’re getting some really good quality individuals.
The level of in-house knowledge to assist the resourcing function in ensuring that we only select the best people out there and to grade the service these contractors provide to us historically so we can understand who has the level of skill in each area – be it a recall expert or somebody who is a fantastic advice suitability checker.
Somebody with the in-house knowledge who can robustly test and assess our contractors to meet the skills and the requirements for what the client needs is a big advantage for us. Being a close-knit team with Advisory such as yourself working in tandem with resourcing, and jointly delivering projects, means that knowledge transfer is always evident.
D: Without a doubt, and working with the contractors over the last few years, number one, what you’re getting is expertise. Some of these contractors review and have reviewed DB transfers every day for the last four to five years, and you can see the standards and good practice from different firms, and that’s always very valuable.
I think as well, because of the amount of work TCC has done in this area, when you get contractors in firms, you want to be confident in the outcomes, so to say you’ve had TCC contractors come in and do the work should give your senior management confidence that the review has been done correctly.
D: Absolutely – we’ve done work the FCA has overseen, so there is that confidence when you have TCC reviewing advice.
D: In terms of the DB transfer market, we have concentrated a lot on British Steel. The only thing I’ve thought about is that DB transfer prices are quite relevant in terms of acquisitions. As you’re aware, Anthony, there are a lot of acquisitions in the financial advice sector currently.
So, whilst the FCA might be reducing its work somewhat on DB Transfers, acquiring firms certainly are not. As part of their regulatory due diligence, any DB Transfer advice is going to be looked at in detail, and I think that’s going to be a big issue for advisory firms. Firms need to have confidence in their back book of DB advice.
TCC have provided regulatory compliance, advisory, managed service, and resourcing services to the financial services industry for over 20 years with a focus on the wealth and advice sector and has a very close relationship with the FCA.