Alistair Cunningham: An adviser's response to the regulator's DB transfer consultation

We at Wingate Financial Planning do not support a contingent charging ban, as we feel the regulator needs to spend more time identifying the core issues and applying resource to where there is the greatest scope for harm.

There are many adviser biases in recommending a transfer and, among these, we empirically believe that assets under management (AUM) is the greatest. Were contingent charging abolished there would be scope for gaming - ironically, if all firms are on a more or less even playing field, the AUM bias becomes even more significant.

The only way around this bias would be to de-link the advice on the transfer and the ultimate implementation - something else we would not support. Firms should focus on practical ways to identify and mitigate bias and we do not believe the regulators involvement in charging is helpful; it results in advisers focusing on this single issue, rather than other more fundamental biases.

The regulator should focus on identifying poor outcomes as opposed to mandating specific charging structures. The publication of real examples of good and poor practice by the FCA would be welcomed.

For the record, this firm operates a charging structure that is almost exclusively predictable (i.e. non-contingent) with only a small (c. 5-10% of total fee) implementation fee.

‘Gaming'

The FCA's proposals to prevent gaming of any contingent charging ban do not seem adequate on the basis that for many firms the main profit centre is the ongoing advice (and asset management and platform production compound this benefit for vertically integrated firms). The proposals to prevent bias may not achieve the stated aims. 

We agree there certainly is a risk of gaming, particularly for those who almost exclusively conduct DB transfer business, and therefore the FCA's suggestion to charge identically for investment and transfer business may not work if they do not do comparable (non-pension or conversion) investment.

The FCA has made suggestions of client segments who might be exempted from the contingent charging ban, but the ‘carve-out' proposals show to us that the FCA see the contingent ban as problematic.

If the proposals are implemented as anticipated I expect there will be a number of these ‘special cases'. This is hard to assess and enforce, as any assessment of health and wealth is likely to be subjective in degrees.

Our experience is that obtaining medical evidence of the type proposed is very difficult, and often at odds with the opinion of open-market annuity underwriters. By way of an example, one individual who approached us for transfer advice had heart failure but was given only a very small enhancement to ‘normal' annuity rates. This was despite a cardiologist's opinion they might only live to around 70.

In this case it may not be appropriate for the individual to transfer, despite being a classic ‘carve-out'.

There is also the matter of how an adviser identifies an individual would qualify for a ‘carve-out' without collecting personal information, which could be construed as advice. This would be outside what we would expect of a normal triage service and falls into advice - a point elaborated on below.

No price cap

We agree the FCA should not impose a price cap, which is their proposal in the consultation paper. We find the proposals on monitoring a proportionate response, and this would be our preferred approach. 

This area of advice is a high-risk area with the risk of considerable consumer detriment. That a transfer is irrevocable and complex, with both consumer and adviser behaviour stacked against a good outcome, it would be sensible to have a fiduciary responsibility that goes beyond the current regime.

The FCA runs the risk in trying to address every single-issue surrounding DB transfers and, as a result, could fail to successfully tackle the main issue: that most people should not transfer their safeguarded benefits.

Because of this, we are not overly concerned with the basis a firm discloses fees, but it seems any firm should be able to express fees in pounds and pence terms. That said, the FCA should not mandate the method for calculating these as long as it is clear and not misleading.

The FCA recognises a need to involve other organisations, and in particular ask the question around partial transfers, a surprising development to us, as it comes outside of their conventional remit. That said we at Wingate both welcome partial transfers and, more broadly, would encourage the FCA working with The Pensions Regulator and other interested parties to improve the outcomes for pension scheme members.

Perversely, partial transfers would increase the complexity (and therefore cost) of decisions, but it should only lead to better results with more marginal cases being able to ‘hedge' their decisions.

Abridged advice

The proposals on guidance and abridged advice are very interesting. Firstly, the FCA has asked whether a more standardised approach to triage would be sensible with particular regard to the deadline that some members face. This first point seems a little strange as guidance can, and indeed should, be provided without knowledge of a transfer value, so there would be no three-month deadline. 

Only after a scheme member has completed the educational stages of triage and understands both their own motivations for transferring and the benefits they are giving up (as well as other ways of achieving their goals without giving up safeguarded benefits) should they move to advice.

But, that being said, the delays and issues with collating information can certainly be improved and feel this is more evidence the FCA should be engaging with TPR and pension schemes to improve the process.

We did not tackle the technical provisions at the end of the consultation paper so the final topic we entered a response to was abridged advice. On this we support the concept - but only as part of a holistic financial planning process.

As an example, it would be useful to help a client retire, advise on DC pensions and other investments, and be able to signpost that "we do not recommend you transfer your DB pensions as we identified no factors that would suggest your situation is different than most people, who we would expect are best placed in a DB scheme" (though we have not conducted full analysis or asked for a transfer).

However, we would be concerned if abridged advice was looking at purely the decision to transfer, due to the scope for harm. This latter case seems to be the way the FCA are considering it.

We also thought CP19/25 was not sufficiently clear as to whether abridged advice would expressly be excluded from meeting the section 48 of the Pension Schemes Act 2015 requirement to seek advice. We want the FCA to clarify that is the case as it would be potentially disastrous if this well-meaning proposal resulted in even more insistent clients.

Alistair Cunningham is a Chartered financial planner at Wingate Financial Planning

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• Topics
• Regulation
• CP19/25
• FCA
• DB transfers