Advice firms in the defined benefit (DB) pension transfer market have been reminded to make sure they are putting their clients’ best interests at the forefront of their business.
Debbie Gupta, director of life insurance and financial advice supervision at the FCA, said during the Personal Finance Society’s annual conference in Birmingham: “We still see too many firms focusing on the solution they want to provide to the client, and DB transfer advice is a great example of that.
“Firms with the mindset that says: ‘How can I transfer this pension in a way that delivers what the client wants?’
“What we want to see is a mindset that says: ‘What does the client need? And how can I help them achieve that?’”
She encouraged the advisers at the conference “to take up this challenge, not just for yourselves but for the health of the sector”.
The FCA increased its scrutiny of the DB transfer market in 2018 after the British Steel Pension Scheme (BSPS) scandal.
More recently, in June 2019, the financial watchdog said it was disappointed with the number of advice firms recommending people to transfer out of DB pension schemes.
Worries for the UK watchdog
Gupta also spoke about how the FCA has stepped up its “intensive oversight and supervision” of the DB market since 2015, when pension freedoms took effect.
She said that the UK regulator has been issuing guidance on what it wants to see from firms, however it is “still not confident that the concerns we’re raising are being addressed”.
“You’ve got people wanting to give up their DB pension in favour of flexible income,” Gupta said.
“And it’s essentially about being able to balance the consumers’ immediate objectives with their long-term needs, and that makes this work very, very challenging.
“We recognise […] that your consumers are trying to place more value on that cash for now, and less value on an income for a longer period.
“We hope you see your role as challenging those biases to help consumers balance those short-term immediate values with their long-term needs.
“By being able to prioritise what is really important and then make difficult but informed compromises, professional advice really does help make sure those decisions are future proofed.”
Gupta’s comments were made during a speech attended by International Adviser, in which she also spoke about the professional indemnity insurance market for the advice sector.