Defined benefit transfer advice checking - consultant view

Posted: 27th February 2018

First published by Citywire in February 2018

The FCA has published a number of warnings over pension transfers in recent months. It is clearly an area where advice firms can expect further regulatory scrutiny.

For firms giving good quality advice (with the ability to demonstrate it), any investigation should be a formality. Most firms will have likely taken the sensible step of undertaking a review of their advice and supporting processes by now.

But there is an angle that some firms may not have fully considered.

How experienced is the pension transfer specialist checking your advice?

Know your checker

We have previously written about firms that have been the subject of FCA action, resulting in these same firms ceasing pension transfer business, and giving up their permissions.

Now, more than ever, firms need to be prepared for the regulator asking some questions - or perhaps an even more intrusive investigation. Therefore, knowing the level of experience your checker has will stand you in good stead.

The recent FCA consultation CP17/16 ‘Advising on Pension Transfers’ states:

‘Given the complexities of this area, it is our view that the pension transfer specialist qualification alone is not enough to demonstrate this competence. Relevant experience is essential, as is maintaining knowledge.’

Many firms will use suitably-qualified pension transfer specialists to check advice, but the regulator is still concerned about some professionals lacking the necessary experience (they may not be advising as well as checking).

As a result, there is likely to be an increased focus on the experience of those specialists checking the advice.

Considering the quality of the advice could be dependent on the decision-making of the specialist; enquiring about their experience could be one of the first questions the FCA may ask.

So, how much experience does a checker need?

The FCA consultation says:

‘We expect firms to make sure that pension transfer specialists have experience on a suitable range of cases’, and that ‘it may be challenging for advisers who are not regularly involved in advising on the conversion and transfer of safeguarded rights to evidence an appropriate level of competence.’

Questions you can ask your checker to determine their level of experience include:

• How long have they been involved with pension transfers?
• What volume of business have they dealt with previously?
• Have they dealt with a range of different scenarios?

Each firm may have different criteria, but this is still going to help in making the right judgement.

The FCA has also said it has seen cases where a specialist doing a check has simply run the transfer value analysis calculation or checked numbers rather than looking at the overall assessment of the advice.

The regulator is proposing to enhance the checking specialist’s requirement to assess the ‘reasonableness of the advice’.  This means although the checker is not expected to repeat the advice process, a robust check of all elements is expected.

The FCA says ‘checking does not require a fundamental repeat of the advice process, but will involve an independent assessment of the soundness of the basis for the advice’ - so any time taken to review checkers’ experience and approach could be well spent.