UK pension watchdog the Financial Conduct Authority (FCA) is considering making changes to pension risk transfers.
In a consultation paper published Monday, the FCA seeks to raise qualification levels for pension transfer specialists so they may possess the same qualifications as an investment advisor, as well as a requirement for firms to provide suitability reports regardless of advice results with clients.
“Defined benefit pensions are valuable, so most people will be best advised to keep them,” Christopher Woolard, FCA’s executive director of strategy and competition, said in a statement. “However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision.”
The FCA also addressed several guidance-related proposals in the consultations. This includes clarification guidance for the watchdog’s expectations for advisors to determine how clients feel about the risks associated with pension risk transfers. Another guidance measure is for firms to show how they can conduct a proper introductory conversation with potential customers without overstepping their advisory boundaries, known as a “triage” service.
Another proposal being considered is the banning of “contingent charging,” where clients will only pay for advice should they transfer their pension pots. The FCA noted that the continent charging model could possibly allow for a firm to offer poor advice to consumers in order to profit, as the firms would lose their credibility if they didn’t recommend a minimum number of transfers each year.
“We consider that these areas are linked, in that the existing starting assumption could be perceived as countering the incentive to give unsuitable advice created by a contingent charging model,” the paper read.
The paper continues the work the watchdog began in June 2017, when the FCA proposed changes to pension transfers, primarily focusing on defined benefit schemes transferring to defined contribution schemes.
“We are also looking at whether further changes are needed to improve the quality of advice in this area,” Woolard said. “In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model, so we are asking for views on whether we should ban contingent fees for pension transfer advice. Defined benefit pension transfer advice continues to be a key area of focus for the FCA.”
Tags: Financial Conduct Authority, Pension, Pension Transfer, UK