The Financial Conduct Authority’s (FCA) U-turn on dropping the unsuitable defined benefit (DB) transfer assumption could be attributed to the poor advice given to British steelworkers, according to industry experts.
Royal London pension expert Justin Corliss said the regulator had been “scarred” by the British Steel experience.
“They have found too many cases where scheme members were given unsuitable advice to feel confident that now is not the time to alter the starting assumption,” he said.
On Monday, the FCA revealed it has abandoned plans to drop the unsuitable DB transfer assumption as a result of concerns about unsuitable advice being given in the area. The FCA first proposed the change in a consultation last June, prior to the poor advice given to steelworkers hit the headlines.
Steelworkers told Professional Adviser that advice firm Active Wealth UK and unregulated introducer Celtic Wealth Management told them it was a “no-brainer” to transfer, asked them to fill out risk-aptitude forms at the end of the process, and placed them into a fund that charged a 5% exit fee for the first five years, which they were not made aware of.
In January, a letter from FCA chief executive Andrew Bailey revealed only half (51%) of the transfer advice given to steelworkers was suitable. Comparatively, a report released in October found the regulator deemed fewer than half (47%) of all DB transfers it reviewed, where the recommendation was the transfer, were suitable.
Xafinity Punter Southall head of DB growth Sankar Mahalingham echoed Corliss’s thoughts, and suggested the U-turn could be attributed to the British Steel case and Work and Pensions Committee chair Frank Field’s comment on the matter.
Field has been a vocal critic of the regulator throughout the last few months, and has referred to its handling of British Steel workers as “grossly inadequate”.
‘Inherent conflict of interest’
Also on Monday, the FCA released a consultation that revealed it is considering whether to implement a ban on contingent charging for pension transfer advice.
After urging the financial watchdog to ban the practice, Field was pleased to hear the “FCA is listening to the committee.”
“Purging the inherent conflict of interest posed by contingent fees is a necessary, although not sufficient, step, towards giving the public the assurance of an unbiased and professional service from the financial advice industry,” he said.
“The FCA should now take the battle against the pension-snatchers further by banning contingent charging on defined benefit transfer advice.
“As pension transfers surge to unprecedented volumes, the disturbing amount of unsuitable advice in this area poses a clear and present threat to the nation’s pension savings.”
Meanwhile LV= head of policy Philip Brown welcomed the consultation paper: “We welcome the review of contingent charging as, if an adviser’s fee solely depends on the transfer going ahead, there is potentially a major conflict of interest.
“The regulator’s continued focus on this market is absolutely necessary to ensure that only someone who would benefit from the freedoms transfers out, and not anyone who would be worse off as a result.”
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