Is now a good time?

The tentative question posed in the heading to this article refers to the vagueness of the rules around when disclosure should be issued to clients. We have written about this before, most recently in connection with the Personalised Charges Communication that is now required to be issued to clients when full pension transfer advice is to be provided.

Our article stated:

“… the personalised  charges communication. This must be issued to clients in addition to the firm’s standard fee disclosure documents when full advice is to be provided. It must be issued in writing, in good time before making the personal recommendation. For that reason, the one-page summary that has to be included in the suitability report does not replace the need for a personalised charges communication. In any case, although the one-page summary does include charges information, the personalised charges must include some information that is not in the summary, including “… the expected amounts payable (in cash terms) … and a statement that the amount of charges payable … is the same whether or not the advice is to transfer or convert …”. Full details of what must be included can be found in COBS 6.1A.18A.”

This is based on COBS 6.1A.17, which relates to the timing of disclosure generally, and COBS 6.1A.18A, which brings up the rear with fuller detail in relation to the personalised charges communication in particular. But COBS 6.1A.17 begs the question of what “in good time” means and this is a question that we are asked regularly! Not only is “in good time” rather vague but it also potentially conflicts with COBS 6.1A.24 which uses the phrase “as early as practicable” and potentially also with this statement in PS20-06 that specifically refers to the personalised charges communication.

“We have found a high level of disclosures which do not comply with our rules. So advisers will be required to improve disclosure of advice charges by providing personalised charges information before the advice process starts.”

This introduces yet another description of required timing, namely “before the advice process starts”.

So what’s the answer?

We are very, very clear that the over-riding rule is COBS 6.1A.17 …

“A firm must disclose its charging structure to a retail client in writing, in good time before making the personal recommendation (or providing related services) or commencement of the abridged advice process.

… so we can reaffirm the accuracy of our previous newsletter article.

The “good time before making the personal recommendation” is very specific and clear about the line against which ‘in good time’ is measured but the rules have long used this ‘in good time’ phrase in connection with disclosure and suitability report issue which is rather less clear and more open to interpretation. Similarly, the “as early as practicable” statement has been there for quite a while too. This is unhelpful, not only because it is also a vague term but also because it uses a different set of words to describe the same thing! Unhelpful indeed but, looking beyond that, we do not believe that “as early as practicable” really means anything different or conflicts with/contradicts the “in good time” phrase in practice. Hence, we interpret both to mean BEFORE you issue the suitability report in which your personal recommendation sits.

That just leaves the PS20-06 guidance to deal with. This relates specifically to pension transfer advice and introduces a definitive ‘before’, as in COBS 6.1A.17 but omits the ‘in good time’ qualifier. Again, these subtle yet clearly potentially conflicting ‘definitions’ are unhelpful but almost certainly merely the result of text being written by different people with different styles at different times. We do not believe there is any intention in PS20-06 to contradict the relevant rule and, in any case, when push comes to shove, it is the rule that prevails.

We should however, give some thought to what is meant by the start of the advice process. Many might think that the process starts at the fact find stage. Well of course it does in common sense speak. But it doesn’t in a regulated sense, not least because factfinding is arguably not a regulated activity. Although there are various opinions as to whether fact finding is a regulated activity, the FCA did clarify back in 2013 that it could be conducted by a non-CF30 (providing monitoring/oversight was in place to ensure that the risk of inadvertently stepping over the line into regulated activity was avoided).

More importantly, the following extracts from FCA emails to ATEB correspondence with the FCA provide the clue that the point at which pension transfer advice actually starts is not at the fact find stage but when any of the analysis work is commenced.

“Personalised Charges Communication

For advice which is subject to the ban on contingent charging, a firm must disclose a personalised charges communication. It must include “the expected amounts payable (in cash terms) … and a statement that the amount of charges payable … is the same whether or not the advice is to transfer or convert…” (COBS 6.1A.18AR(1) and COBS 6.1A.18AR(2)). 

In FG21/3, we said consumers need to be able to consider whether they want to incur the costs of advice before firms actively undertake any of the steps associated with the advice process. We also noted that firms should not start work without getting a consumer’s agreement to the personalised charges first. As part of this agreement to the charges, there is nothing to prevent a firm from requesting confirmation from the client that they can meet the cost in the event that a transfer does not proceed. 

Halting Advice

The ban on contingent charging requires firms to be able to show that they have charged for advice that has been started, but not completed (COBS 19.1B.7E(7)): 

“(7) A firm should not undertake some services related to full pension transfer or conversion advice, such as parts of appropriate pension transfer analysis or transfer value comparator, then decline to advise further and not charge for the work undertaken”

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

In summary, general disclosure, and for transfer advice the personalised charges communication, should be issued as soon as possible but, in any event, before the personal recommendation.

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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