The FCA has been running a series of workshops up and down the country, giving feedback to firms on their findings around pension transfer advice. Having attended one of the events, we thought it would be useful to share the content here for the benefit of firms that were not able to attend. 

From our point of view, we were delighted to note that ATEB’s guidance is totally aligned with the FCA’s position as regards transfers.

Here’s a brief summary of the points the FCA particularly highlighted:

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Clients
The FCA’s main concern is that clients are making poor decisions concerning:

• the decision to transfer;
• the underlying investment destination.

Action: Firms should assess whether the transfer process addresses these concerns. 

Advisers
The main failing on the part of advisers is inadequate KYC:

• in particular, there is poor assessment of risk; both investment risk and the risks of transfer;
• advisers are not assessing client needs and not challenging client objectives;
• KYC is focused on current circumstances and needs, with no indication of future (retirement) circumstances and needs;
• it should be noted that the FCA regards the main client need as (probably) income in retirement;
• death benefits are often highlighted as a need or objective, but the file does not evidence any analysis of the client’s actual requirements for death benefits.

Action: Advisers should think about appropriate KYC tools specifically in support of pension transfer advice.

Action: The advice process must differentiate between investment risk and the risks of transfer (any conflicts should be identified and resolved).

Action: The adviser must been seen to measure client needs versus objectives (objectives should be probed and challenged).

Action: If death benefits are a need/objective, the file must evidence an analysis of the client’s death benefit requirements now and in the future.

Understanding ceding scheme benefits
The adviser’s assessment of a ceding scheme can be flawed:

• The main concern is that adequately detailed scheme information is simply not obtained;
• The ‘underfunded’ position of a scheme is often overplayed;
• Advisers highlight ‘penalties’, which are not penalties;
• Advisers are not sufficiently competent to assess scheme benefits (or don’t bother).

Suggested action: Full ceding scheme details must be obtained (an industry standard trustee template for providing scheme information should be available from May/June 2019).

Suggested action: Firms should ensure that advisers are assessing scheme benefits accurately and in a balanced way.

APTA
Appropriate Pension Transfer Analysis (APTA) and Transfer Value Comparator (TVC):

• The TVC is mandatory whether advice is geared to early retirement, normal retirement date or late retirement;
• The FCA still sees a role for critical yield as part of the APTA (if it is an appropriate measure);
• The adviser should tailor the APTA to the specific circumstances and needs of the client;
• The FCA has no intention of mandating the content and format of the APTA, as it is considered to be case-specific;
• The FCA has no intention of mandating the use of cash-flow modelling.

Action: Firm’s must ensure that their communication of the TVC and the APTA is balanced and objective, and it places the client in a truly informed position.