This statement initially focuses on the Secondary Advice element of a Pension Transfer (from a defined benefit scheme or other scheme with safeguarded benefits) i.e. the investment recommendations following the conversion of benefits. The concern being that unsuitable recommendations are made and/or that clients are being scammed.

The Expectations

The Authority reminds firms that consideration is to be given to the assets in which a client’s funds will be invested, as well as the specific receiving scheme.

Advisers and those responsible for preparing a transfer analysis should be familiar with - and reinforcing - the guidance set out in COBS 19.1.2R(1).

Where any advice given on the transfer/conversion of safeguarded benefits neglects to consider the likely expected return of the assets under the recommended investment strategy, as well as the associated risks and all costs and charges that will be borne by the client, the advice is unlikely to meet the expectations of the FCA. Here advisers and those in relevant positions are advised to refer to COBS 19.1.2 and 19.1.6-19.1.8.

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Critical Yield Concerns

The FCA has announced that recent supervisory work undertaken has revealed that a number of firms have been recommending pension transfers based solely on whether or not the Critical Yield is below a certain rate: a rate which has been set by the firm for assessing transfers generally. Needless to say, this does not meet FCA expectations.

Permission and Responsibility for Advice

Only a firm with the FCA permission to advise on pension transfers may advise on pension transfers. A firm without permissions cannot outsource the transfer analysis to a pension transfer specialist or to a firm with the permission, and claim to be advising on the pension transfer.

A firm without permission to advise on the pension transfer may refer a client to a firm with permission to do so. However, the firm that then takes on the client is not meeting FCA expectations if they claim to be advising on the pension transfer without taking into account the assets in which the client’s funds will be invested as well as the specific receiving scheme.

This takes us back to the start of this article and the secondary advice element of the transfer.

Where two firms may be responsible for different elements of advice given to the client, firms are expected to liaise for consistency.

FCA rules permit an individual who is not a pension transfer specialist to advise on pension transfers. However, the firm is required to have the advice checked by a pension transfer specialist.

The firm advising on the transfer remains responsible for the advice - including advice which has been checked by the pension transfer specialist - even where the pension transfer specialist is not employed by the firm.