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FCA: Less than 30% of DB transfer disclosure compliant

The Financial Conduct Authority (FCA) has revealed endemic failings in the disclosure and communication of firms advising on pension transfers.

FCA: Less than 30% of DB transfer disclosure compliant

The Financial Conduct Authority (FCA) has revealed systemic failings in the disclosure and communication of advice firms advising on pension transfers, including the way they are presenting fees.

The regulator has today published the findings from data collected from 45 firms this year, following which it conducted further assessment work including file reviews and visits to 18 advisers. These 18 firms carried out 24,919 pension transfers since 2015.

This review, which looked at 154 transfer client cases from the 18 advice firms, found less than half of the cases (48.1%) were suitable. 

A key issue the regulator raised was failings around client communication.

Of the cases reviewed for disclosure and communications with clients, 61.7% were deemed non-compliant and 9.1% unclear. Only 29.2% were compliant. 

Failings were driven in part by shortcomings in presentation of initial and ongoing fees.

The regulator observed failures to communicate in a way that was ‘clear, fair and not misleading’ over defined benefit (DB) pension scheme’s solvency and the feasibility of the Pension Protection Fund (PPF).

‘We observed the use of emotive language, and misrepresentations about the scope of PPF protection,’ the FCA said.

Last year the PPF said IFAs were ‘misrepresenting’ the pension lifeboat to create ‘fear’ among members and using this to encourage members to take transfers.

Lengthy reports

The FCA added firms were writing ‘long suitability reports with unclear recommendations’. 

They were presenting DB schemes’ provision for spouses and dependants and early retirement ‘negatively’, in contrast with ‘freedoms’ offered by defined contribution (DC) schemes.

Some firms reportedly ‘over-emphasised the benefits and down-played the risks of transfer to an alternative arrangement’.

The FCA also found firms delivering triage services were often doing so based on a consideration of the circumstances of the client, and therefore 'providing regulated advice at this initial stage'. 

The report added: 'We consider that any guidance based on a consideration of a customer’s circumstances which steers them one way or the other is likely to be advice on the merits of a transfer, and therefore pension transfer advice.

The regulator is currently reviewing data gathered from every firm in the UK with pension transfer permissions, and will begin a 'wide-ranging programme of activity with firms' in 2019. 

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