The Financial Conduct Authority (FCA) has "hammered home" the default option when considering transferring a client out of a defined benefit (DB) pension should be to stay with the guaranteed income, Rory Percival has said.
Speaking at The Great Pensions Debate in Peterborough, the former FCA technical specialist-turned consultant said this "default" position of the regulator was likely to continue.
However, despite recognising the regulator's position, he argued transfers were a financial planning issue, not a regulatory one.
The FCA had its default position, which was to remain in the DB scheme, but this was always subject to an individual's circumstances, he said.
"The regulator will look at each individual case on its own merits and judge whether, from a financial planning perspective, that was the right solution," Percival (pictured) said.
"Has the client lost valuable benefits without good reason? If there is good reason then it's fine. The regulator will only deem a case unsuitable if there's a demonstrably better alternative that it can actually articulate."
Advisers must be "whiter than white", he added.
Conflict of interest
Percival also warned advisers charging on a contingency basis for DB transfers were subject to a conflict of interest, whether they were determined to be fully professional or not. It is a sub-conscious problem, he argued.
"You might think ‘ah yes, but I do a professional job and I'm also concerned that there might be some regulatory action or issues with FOS coming down the line that means I give the right advice'," he said.
"You might think that explicitly, but there is academic evidence to say that, as an agent, such as an adviser, when considering an action such as suitability then that person is likely to sub-consciously big up the points that work in favour of themselves and belittle the points that work against.
"This issue is one that happens sub-consciously and makes it difficult to manage that bias. You need to think, as a firm, about the appropriate systems and controls to ensure the clients get the right outcome."
Percival suggested the debate about contingency charging should also go beyond DB transfers. Financial advice cannot be considered a profession until advisers charge for advice rather than execution, he said, adding the FCA would view firms "favourably" if they did not charge on a contingency basis.
"If you charge on a contingent basis at the moment, I seriously consider you move to a non-contingent charging basis. In the long run the sector should move to a non-contingent charging basis anyway.
"I think it's a much more professional approach that affects what you actually do and the advice that you give, therefore the advice should relate to the cost that you give, not the execution of that advice."
The chairman aims to shore up morale
UK economic headwinds are building
Three step reporting process
SJP academy hired 35 grads in May
Three advisers have their say…