Suitability of Pension Transfer Advice

The Financial Conduct Authority (FCA) has growing concerns about the suitability of defined benefit (DB) pensions transfer advice and has issued alerts outlining the areas of its unease and the expectations on firms providing advice. Recently it has also given the strongest indication yet that it is going to review any pension transfer advice by authorised firms. 

Since the introduction of pensions freedoms in April 2015, consumers have more options available to access their pensions. This has combined with more recent changes to the financial environment leading to historically high levels of transfer values. Therefore, the desire by consumers to get access to their pensions is high. 

The FCA has said that it has uncovered a growing business between introducers and authorised firms. It has stressed the importance for authorised firms to meet their regulatory requirements and that they are responsible for advice given by an unauthorised introducer (including lead generator and/or other authorised firm). In cases where the advice is accepted and found unsuitable for the consumer, it will lead to regulatory action.

The core concern surrounding the pensions transfer advice is when the advice comes from a firm using a commoditised business model. The FCA says that these firms are “likely to give unsuitable advice or fail to recommend a suitable destination fund” and “do not adequately focus on the clients’ needs and personal circumstances”. Its analysis over two years of 88 DB transfers, identified that in only 47% of cases was the transfer advice suitable.

Like all investment advice and remediation issues in the industry, we will be keeping a close eye on further comments and views from the FCA in this area.

Related information:

• 14 February 2018 - FCA letter to firms “Pension Transfer Advice – reminder of our requirements” dated 16 January 2018 (published on FCA website on 14 February 2018)
• 24 January 2018 - FCA news “Advising on pension transfers” – our expectations
• 3 October 2017 - FCA news “Our work on Defined Benefit Pension Transfers”
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• OAC Regulatory Compliance Services