Rachel Vahey: Keeping on the right side of the advice boundary

Advisers must stick to the script when it comes to the DB transfer triage process, writes Rachel Vahey

It was hard not to miss the recent headlines screaming about a Financial Conduct Authority (FCA) £1.3m fine for an adviser’s involvement in mis-advising members of the British Steel Pension Scheme to transfer £74m.

Unfortunately, it was almost easy to forget that at the heart of this story 174 people are facing a bleaker financial future.

No doubt many fingers will be pointed apportioning blame. Some of them towards the FCA for not stopping this behaviour earlier.

Whatever, the FCA’s approach to defined benefit transfer advice was in the past, it is now all about belts and braces. This remains a key area of regulatory focus and the FCA is bullish in making it clear what its expectations are.

New rules

Several new rules for defined benefit transfer advice came in last October.

The rules framework is backed up by a meaty FCA guidance document which brings to life what the advice could look like in practice, with both good and bad examples. This is essential reading for anyone either putting together new processes or reviewing their current ones.

One of the new areas is triage. The FCA is firm that triage is not advice; it is guidance. It cannot be personalised and cannot refer to the client’s own circumstances. Instead, the information given in triage must be generic and factual.

It’s easy to see how this could trip up some advisers. Often the adviser won’t be having an introductory conversation with someone they have never met before.

Instead, they’ll already know the client and the subject of a potential transfer is being raised within the trusted environment of a review meeting. However, the FCA warns advisers that they cannot stray into crossing the advice boundary.

It may be obvious, given what the adviser knows about the client, that a defined benefit transfer is not the right decision, and they may think a formal advice process is a waste of time for them and money for the client. But advisers must make sure they only give generic information and don’t relate it back to the personal.

Keep their distance

Sometimes, the easiest solution is to use pre-prepared material – either written or video – produced by the adviser firm or a third-party triage service.

That way the adviser gets to keep their distance – if the material is delivered face-to-face it’s easier to be drawn into a personal discussion. But the client could also interpret that as being given the brush off. 

Triage should give the client enough information to help them decide whether to take abridged or full advice.

In the guidance, the FCA addresses the point that many advisers will want to stop consumers spending money needlessly on advice and would prefer just to close down the conversation.

But the bottom line is advice can only be given in an advice setting.

Instead, the FCA believes firms may want to consider whether they can give abridged advice at a lower-cost alternative to address this issue.

The FCA is keeping a firm regulatory hold on defined benefit transfer advice. It won’t want to see future headlines of poor advice and million-pound fines referring to advice given today.

Advisers need to make sure they keep to the script – regardless of how well they know their client.

Rachel Vahey is senior technical consultant at AJ Bell