Pension switch, pension transfer, investment switch, fund switch, platform switch, product replacement, policy re-write – all terms that describe some form of replacement.
Firms can sometimes get confused about the requirements for different types of replacement, particularly with the FCA issuing specific guidance where they consider there to be a high risk of consumer detriment, such as for pension switches and platform switches.
However, the fundamental principles stay the same regardless of the replacement type:
- It must be suitable.
- It must be in the client’s best interests.
- Where a more expensive solution is recommended, there needs to be a good reason and this reason needs to be justified to the client (unnecessary additional costs is often cited by the FCA as a reason for unsuitable advice).
To demonstrate the above, relevant comparisons between new and old must be undertaken and objectively analysed. The advantages and disadvantages must be disclosed and discussed with the client. Alternative solutions must be considered. Care should be taken when considering complex replacements, such as critical illness. There must be clear and documented justification for the replacement.
The reasons why the adviser considers a replacement suitable must be clearly explained in the suitability report.
Firms therefore need strict controls to police all forms of replacement business and the default position should be – ‘don’t replace unless there is a damn good reason to do so’.
If you have not already done so, you should read this guidance http://www.fca.org.uk/static/pubs/guidance/fg12-16.pdf.
This guidance on pension switching is also important
as is this for platforms