Hard on the heels of the rule changes that took effect from 1 October 2018, comes the final (for now) piece of the jigsaw of rules and pronouncements that the FCA has been working on for the past year or two. We know that the regulator is now embarking on a huge data gathering exercise with all firms holding transfer permissions and is likely to revisit the thorny topic of contingent charging, but meantime, Policy Statement PS18/20 – ‘Improving the quality of pension transfer advice’ – closes a few outstanding aspects with some further rule changes and guidance. Here is our summary of the key points.
Pension Transfer Specialists (PTS)
The qualification requirement to be a PTS is to change. In future, a PTS must hold the Level 4 qualification for providing advice on investments as defined in the RDR, in addition to the PTS qualification (ApEx21), before they can advise on or check pension transfer advice. The qualifications must be in place by 1 October 2020 at the latest. Meantime, firms should bear in mind the obligation to ensure that individuals are competent for the role they undertake.
In addition, the PTS qualification exam standards are being changed to reflect the updated rules and guidance as well as wider changes in the pensions area, including pensions freedoms. For those individuals who have the qualification under the current syllabus, CPD and other personal development should ensure gap fill requirements are satisfied.
Consideration of the target plan
The FCA has reconfirmed that transfer advice must take account of the proposed destination of the transfer, including the plan and the intended investments.
If advice is to be provided to a client who wishes to self-invest, the same rules apply, the adviser must obtain all the relevant target plan/fund details from the client before advice can be given.
Where two advisers/firms are involved, there should be appropriate due diligence done on each other, an adequate agreement in place covering roles and responsibilities and close liaison between the firms in each case dealt with.
In order to avoid any triage or filtering process being considered as regulated advice/personal recommendation, inadvertently or otherwise, the process should be informational, generic and should not express or imply any view on whether the client should transfer or not. The process is to enable the client to make an informed decision as to whether to proceed to take formal advice or not. See here for more detail from our recent article on triage.
There is a need to assess the client’s attitude to Transfer Risk, which is distinct from investment risk.
Where a client is recommended not to transfer, it has long been the case that the recommendation had to be confirmed in writing. In future, a Suitability Report will be required.
Discussion on contingent versus non-contingent charging continues. The FCA has decided not to ban contingent charging for the moment as doing so is not straightforward and it is recognised that there would be some potential adverse consequences of such a decision. However, firms are reminded that contingent charging represents a conflict of interest and must be managed in an appropriate manner to any negate adviser bias to recommend a transfer.