As mentioned earlier, the sample was small, probably because the subject matter in this exercise was more complex than on advice generally. It is also interesting that a large proportion of cases were not right or wrong but "unclear", although the FCA has been quoted as saying that an unclear rating constitutes a breach of conduct of business rules in its eyes.
Either advisers are not being diligent enough in their documenting of the whole process or perhaps they are making a recommendation to transfer with less information than they would have had in the past.
Key points
- The FCA produced a snapshot of the current situation following its consultation on defined benefit transfers.
- Advisers are making a recommendation to transfer with less information than they would have had.
- The whole transfer process is complicated and uncertain.
This could well be due to the fact that many clients are keen to get a positive recommendation from their adviser as quickly and cheaply as possible. Transfer values are currently high and the availability of a high value that is only guaranteed for a short time with the possibility that it might fall could certainly focus the mind on getting that positive decision.
The FCA consultation and some of the shortfalls articulated in the update have shown some of the new ways of thinking for the transfer process.
Many of the transfer value analysis system (TVAS) assumptions are going to be updated in FCA's guidance on appropriate pension transfer analysis (APTA), of which details are still to be announced. However, the focus of such quantitative assumptions has moved from just looking at the transferring scheme to bringing in the destination of the money, as well as the planning needed to achieve a similar benefit based on investment planning and capacity for loss (focusing on new products, the investment funds and charges on those funds).
There is a big quantitative issue involving the sacrifice of a guaranteed income, but there are many iterations of the qualitative issues – death benefits, paying off debt, a need for inflation proofing, the viability of the sponsoring employer and even the percentage of wealth represented by the transfer value. These are difficult subjects to shoehorn into a rigid tick-box process.
What might happen next
At the moment the focus is on the advice process, there has been no suggestion of negative outcomes. If that is the case then there is a strong message for all in this market to get back to the details of Conduct of Business (COBs) 19 and make sure processes and procedures are watertight.
The issue of redress should also be considered. It is virtually impossible to reinstate members into DB schemes. Moreover, how is a bad outcome measured, particularly if the reason for a transfer is documented as a qualitative one, but any future complaint is based on a quantitative one?
The elephant in the room has been pension freedoms. Under one pension regime the need for a guaranteed income does not exist and indeed the abolition of the need to buy such a guaranteed income sends signals to consumers, perhaps that a guaranteed income is not so important and that there is a choice over how to spend the money. However, under the other pension regime, a similar individual will have to pay for advice to access their money, even to the point that they pay and the advice might be not to transfer.
