Abridged Advice


Tailor Made Pensions - Abridged

The long awaited FCA policy document for Abridged advice was released on 5th June. This is effective from 1st October 2020.

Abridged Advice and Contingent Fees

From that date, the FCA has banned contingent advice fees for ‘Safeguarded Pension’ transfers that require a UK Pension Transfer Specialist to provide regulated advice. Contingent advice occurs when the advice fee, payable to the advice firm, is only payable if a transfer from a pension is arranged. This has led to concerns that advisers may recommend a transfer that may not be in the client’s best interest, leading to a potential conflict of interest. Therefore, advisers that provide a full review must charge the same whether there is a recommendation to transfer or a recommendation not to transfer.

Due to concerns that consumers may not wish to pay for the full service, initially, the FCA will allow firms to provide a shorter form of initial advice. This is termed ‘Abridged Advice’.

The purpose of abridged advice is to assist consumers to access initial pension transfer advice at a more affordable level than a full retirement review.

Abridged advice can only result in one of the following-

  1. A personal recommendation to the client not to transfer or convert his/her pension, or
  2. Informing the client that it is unclear whether or not he/she would benefit from a transfer or conversion based on the information collected. The adviser would then ask the client whether he/she wished to proceed to full advice. At that time, the client would be informed of the cost of this advice.

Abridged Advice – What Information Is Provided?

The abridged advice is based on a fact-find, risk assessment and information about the current pension scheme.

An Appropriate Pension Transfer Analysis (APTA) and Transfer Value Comparator (TVC) will not be undertaken for abridged advice and there is no consideration as to  how funds might be invested if a transfer were to proceed in future.  An assessment of risks with a specific flexible arrangement will also not be undertaken.

In the event that it is not clear whether someone would benefit from a transfer, they will be offered a full review and the costs of this review will be confirmed within the abridged advice letter.

Consumers should bear in mind that, after a full review, the advice may be to retain the benefits in the existing scheme.  As explained above, the fees for a recommendation to remain within the current scheme and the fees to transfer must be the same as per FCA guidance.

Abridged Advice – Concerns About Overseas Advisers

Having read the Policy Statement, we identified a possible area of confusion  – that was also confirmed when we asked an ex FCA director.

Page 16 of the policy statement does leave the potential for overseas advisers to take fees or commissions contingent on the transfer.

All we can suggest, at this stage, is that those outside the UK that want advice on their UK pensions ensure that their UK and overseas pension advisers are clear about all the fees that will be charged. Also, they should satisfy themselves that the advice to transfer is really in their best interests and get the UK adviser to confirm after hearing the recommendations of the offshore adviser- before taking the advice.

FCA jurisdiction

The FCA has no jurisdiction over non-FCA regulated advisers and so there is a possibility that the UK adviser is basing their assumptions on misleading statements from an unregulated overseas adviser – in this context all overseas advisers without licences in the UK are deemed unregulated by the FCA for pension transfer advice.

Therefore, we strongly suggest that you ensure that you make the UK Adviser fully aware of what the overseas adviser proposes and get the UK adviser to sign that the advice is based on the specified recommendations of the overseas adviser. This of specific importance where an insurance bond is recommended from Quilters (formerly OMI), Prudential, Utmost, RL360, Investors Trust and others. Ensure that the surrender charges and ongoing charges are fully detailed (in most cases we review these charges amount to around 2.6-4.7% per annum for the first few years and this should be in the report that you are getting from the UK adviser).

 

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

 

This article was republished on 9th June 2020

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