What do advisers make of the FCA’s epic DB transfers consultation?
The FCA’s watershed consultation paper on DB transfers has been published. Has the regulator hit the target when it comes to fixing the market?
The FCA wants to drive down transfers and costs
Although the focus is on contingent charging, the FCA has an underlying belief charging in this part of the market has gotten too high when it comes to the choice of the replacement product. When charges include platforms, expensive funds and DFMs alongside adviser charges; annual management charges will typically be around 2.5 per cent.
The new requirement to consider the client’s workplace pension, where charges may be no more than 0.75 per cent per annum, may well have a significant effect on the market.
For most people they should transfer into a workplace scheme or master trust. It is an interesting question because most advisers think the wrapper they put together does provide value for money.
But the FCA wants advisers to prove it in suitability reports. It is easier to recommend a transfer if you put a client into a lower price fund. Extra charges make it more difficult to recommend the transfer.
When you are looking to understand if it is good for a client to transfer or not, the higher charges make a weaker case to transfer. So the adviser has to say they can justify the higher charge from the transfer with higher investment growth. You want a DB transfer to be straightforward.
The more uncertainty an adviser brings into it the harder it is to say it is in the best interests for the client to transfer.
It seems to me what the FCA say on workplace and non-workplace pensions is that they are highly uncompetitive. The threat of a charge cap is in the background, but it would take a couple of years to be implemented.
CTC Software Chairman – Nigel Chambers