— Josephine Cumbo (@JosephineCumbo) November 13, 2020
There are two ways to consider the FCA’s supposed inactivity opening cases into pension transfer advice.
The first is to adopt the FT’s and question how the FCA can tolerate 50% + transfers being questionable without setting up a second pension transfer review. Dominic Lindley comments in the piece
“There have been widespread failures in the market for defined benefit transfer advice affecting thousands of consumers. The FCA should use its powers to implement a full scale redress scheme under section 404 of the Financial Services and Markets Act.”
The second is to consider what the market is up to and whether investigating tens of thousands of cases is a good use of its resources.
I side with the FCA who have clearly taken the view that by banning contingent charging, they have cut off the oxygen to those advisers who weren’t advising but liberating. Professional indemnity insurance premiums are set with regards to the risks of claims against these advisers and these don’t have to take the form of fines from the FCA.
Most of the commercial pressure on advisers with transfers will come from determinations by the Financial Ombudsman met by the Financial Services Compensation scheme. There is a burgeoning industry of compensation lawyers keen to help those who think they may have a claim, take matters to these bodies.
The FCA has – belatedly – intervened; now it should focus on getting consumers better value for money, ensuring that governance works and helping those who do not have the benefit of financial advice – unadvised pathways to good results.
The restitution of wrongs and the the prosecution of wrong-doers will remain a secondary function for the FCA. Its primary job should be to make sure that things don’t come to that. Prevention is better than cure, even if their is more glamour in being a cop and a judge than a financial regulator.
The list of statements made on the subject by the FCA is long and so are most of the documents listed below.
Consultation Paper CP15/7 – Proposed changes to our pension transfer rules, March 2015
Policy Statement PS15/12 – Feedback on CP15/7 and final rules, June 2015
Consultation Paper CP17/16 – Advising on Pension Transfers, June 2017
Policy Statement PS18/6 – Feedback on CP17/16 and final rules and guidance, March 2018
Consultation Paper CP18/7 – Improving the quality of pension transfer advice, March 2018
Policy Statement PS18/20 – feedback on CP18/7 and final rules and guidance, October 2018
Consultation Paper CP19/25 – Pension transfer advice: contingent charging and other proposed changes
Policy Statement PS20/6 – feedback on CP19/25 and our final rules and guidance
Guidance Consultation GC20/1 – Advising on pension transfers
That said, there remain issues with the way that compensation works. Many of the steel men who stand to lose hundreds of thousand of pounds of value from transferring pensions , are being offered awards that in no way restitute them to where they would now be, had the carnage of late 2017 not happened.
The process of getting to where we are is long and laborious but the rules are in place. Those who are determining restitution should use the tools that the FCA have created – there should be consistency between how we see thing going forward and how we see them looking back
Using Transfer Value Comparators to compensate those badly advised.
One of the most useful interventions from the FCA has been the Transfer Value Comparator that provides those looking to transfer out, with the cost of buying an annuity commensurate to the cost of the pension being forsaken. In defined benefit terms this is the cost of buy-out and will typically be much higher than the Cash Equivalent Transfer Value.
Where a determination has been made that the advice offered was bad advice, then perhaps the FCA should suggest that compensation be set at the difference between the CETV payable and the Transfer Value Comparator.
In short, the consequences of what has happened over the past five years, are likely to haunt the advisory market for a time to come. But the FCA has to look forward and is doing so.
The FCA makes the rules but it is up to others to manage disputes and compensation. We are still at an early stage in the compensation process but those with the responsibility for determinations should be grateful to the FCA for the tools they have created to help them.