UK pension advisers need protection from liability to 'insistent clients', trade bodies say

The Association of Professional Financial Advisers (APFA) has become the latest group to call for more clarity from the Financial Conduct Authority (FCA), as part of its response to the regulator's consultation on proposed changes to the pension transfer rules. The Personal Finance Society (PFS) raised similar concerns about the issue of "insistent" clients determined to transfer safeguarded defined benefit (DB) savings into more flexible defined contribution (DC) schemes at the end of last month.

APFA director general Chris Hannant said that the FCA's proposal to bring transfers out of safeguarded DB schemes into DC schemes within its regulatory remit needed further work before it could be formalised - something that the FCA is keen to do by June.

"The FCA should make it clear that no liability would attach to advice which, although the recommendation might be against a DB to occupational DC transfer, acts as 'enabling' advice regardless," he said. "The FCA must also give the advice industry greater certainty on where and how liability would attach for advice to 'insistent clients' who want to go ahead with a transfer against advice."

"While we are confident that the advice industry will continue to rise to the challenges set in motion by the government's pension reforms, investment in the retirement advice space is unlikely to happen without greater FCA clarity on the liability implications of the new pension transfer rules; this could potentially restrict consumer access to professional advice at a time when they need it more than ever," he said.

'Enabling' advice refers to an adviser processing a transaction despite advising against that course of action.

The FCA recently consulted on its intention to bring advice on transfers of 'safeguarded' benefits out of DB schemes into DC schemes into its regulatory remit. This is something that the regulator feels is necessary in order to ensure that savers seeking to take advantage of the new flexibilities available to DC pension scheme members, but not DB scheme members, are properly protected. Safeguarded pension benefits are benefits other than money purchase or cash balance benefits, and are usually backed by employer guarantees.

Under the proposed new rules, advising on the conversion or transfer of safeguarded pension benefits into flexible benefits would become a regulated activity in the same way as transfers from DB schemes, such as self-invested personal pensions (SIPPs) already are. Those advising on such transfers would be required to hold the same pension transfer specialist qualification that must be held by those advising on DB to personal pension transfers.

Hannant said that the FCA also had to clarify "under which precise circumstances" financial advisers would be required to obtain a pension transfer specialist qualification before considering DB benefits. "Our engagement with the FCA on this consultation leads us to conclude that under the new pensions regime, nearly all advisers who want to continue offering retirement planning services will need a pension transfer specialist qualification," he said.

At the end of March, the PFS warned its members not to process transfers for 'insistent' clients acting against professional advice unless and until the FCA had confirmed that neither they, nor the Financial Services Compensation Scheme (FSCS), would be liable for claims if those clients later lost out because they cashed in their safeguarded benefits. It has written to the government and the FCA urging them to formally address the issue.

"If the government want advisers to help implement greater consumer choice, we are calling for an urgent change of policy in recognition of the risks this represents to both the public and the future reputation of the advice profession," said PFS chief executive Keith Richards.

"Caveat emptor must become a recognised component of the insistent client process. Until that happens, advisers should not get involved in unsuitable facilitation without being protected. It benefits neither them, the profession nor the public we are here to serve," he said.