FCA warns advisers over DB transfers
'Concerned' consumers could be scammed
The Financial Conduct Authority (FCA) has warned advisers not to execute defined benefit (DB) pension transfers without considering where the relocated assets will be invested.
The regulator said it was concerned consumers receiving DB transfer advice were at risk of transferring into unsuitable investments or being scammed.
It reiterated its expectations around such transfers saying it was an advice firm's responsibility to take into account the characteristics of assets post-transfer, as well as the specific schemes transferred into.
Referencing its rules, the regulator said advisers should illustrate the rates of return that would need to be achieved by the new scheme to replicate the benefits given up by the safeguarded scheme.
It said: "Unless the advice has taken into account the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet our expectations."
Critical yield
The regulator also said its supervisory work revealed some advisers had recommended transfers based solely on whether or not the critical yield was below a certain rate set by the firm for assessing transfers generally. It said this did not meet its expectations.
Instead, the FCA said, it would expect firms to consider the likely expected returns of the assets in which the funds will be invested in, relative to the critical yield, rather than the rate of return potentially achieved in the defined contribution (DC) scheme to replicate the benefits of the DB scheme.
The regulator also reminded advisers to consider the personal circumstances of each individual client before making any personal recommendations in this space.
Insistent clients
The regulator also gave its view on how to deal with insistent clients, reiterating its three "key steps" principle. It said:
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You must provide advice that is suitable for the individual client and this advice must be clear to the client. Advice on pension transfers should follow the normal advice process for pension transfers.
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You should be clear with the client what the risks of the alternative course of action are.
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You should be clear with the client that their actions are against your advice.
Last week, an adviser warned insistent clients were on the rise as more people approach retirement under pension freedoms. IFS Wealth & Pensions director Alan Chan said the information some consumers received seemed to be misleading as insistent clients expected the advice process to be a quick box-ticking exercise, rather then the extensive process it was.
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