The Financial Conduct Authority (FCA) has clarified its position after its ‘Dear CEO’ letter left pension providers unsure how far their responsibility for DB pension transfer advice extended.
Last week, the FCA sent CEOs of major pension providers a letter explaining what is expected of them when handling defined benefit (DB) transfer business.
The wording of the letter led some pension providers, however, to assume they would have to take on additional responsibility for pension transfer advice given by financial advisers.
The Dear CEO letter read: “We expect you to have appropriate measures in place to ensure that products are being recommended responsibly and appropriately, in accordance with the treating customers fairly principle.”
After provider-led bemusement over what the wording in the letter actually meant, the FCA has now confirmed to RP’s sister publication Professional Adviser that is does not expect pension providers to be responsible for the suitability of advice given by financial advisers.
An FCA spokesperson said: “We do not expect pension providers to be responsible for the suitability of advice provided to consumers by advisers, but we do expect them to understand the underlying drivers to form an assessment on whether harms are being caused to consumers. This is in line with our existing rules and published guidance.”
The original ‘Dear CEO’ letter was the result of a review into pension product providers that sought to identify the key drivers of harm with respect to DB-to-DC (defined contribution) transfers.
In response, investment manager Intelligent Money, which also administers self-invested personal pensions (SIPPs), decided to stop taking DB transfer business onto its books.
‘Further clarity needed’
Upon hearing the FCA’s clarification, Intelligent Money chief executive Julian Penniston-Hill remained unconvinced of the regulator’s position.
“Intelligent Money is still standing by its original interpretation of the ‘Dear CEO’ letter, which Claire Trott, chair of the Association of Member Directed Pension Schemes, agrees with,” he said.
“Without reviewing an adviser’s file and speaking to the client, I am not sure how any provider could fulfil the [FCA’s] expectation thoroughly. Equally, were we to undertake this, then we must garner some liability in doing so.”
He added: “Until the FCA provides further clarity to this we consider that all parties are best served by our initial stance.”