FCA updates guidance on transfers and vulnerable clients

The FCA has issued new guidance to advisers on giving pension transfer advice to vulnerable clients. The regulator has updated its guidance following the implementation of the new Consumer Duty rules in July. The FCA says: “When consumers seek advice about transferring a defined benefit (DB) or other pension benefits, firms should be alert to potential indicators of vulnerability. Firms should create an environment where consumers feel they can disclose their needs and have structures in place to provide suitable support.” The watchdog says that consumers looking to transfer their DB pension may already have characteristics of vulnerability. The FCA said that consumers with DB schemes may be affected by the following circumstances: • They may be worried about the financial situation of their DB scheme’s sponsoring employer • They may be concerned about the solvency of their DB pension scheme • They may have heard their DB scheme is at risk of going to the Pension Protection Fund (PPF) • They may be in serious financial difficulty due to the cost of living The FCA warns that consumers in these situations may also be “susceptible to scams or fraud.” Warning signs that consumers are more vulnerable to scams or fraud activity are: • They may appear overconfident in their decision-making despite low knowledge of pensions or investments • They may be experiencing distraction from personal life events • They may be experiencing financial dissatisfaction • They may be in cognitive decline or socially isolated or lonely • They may appear in a hurry or agitated about arranging the pension transfer The FCA said the new Consumer Duty “raises” the standards it expects of firms, particularly in relation to vulnerable circumstances. Advice firms need to identify when customers with DB pensions are likely to approach them for advice and design and deliver support to meet their needs. In a two-adviser model firms should properly consider the customer’s particular circumstances and whether there are any indications the customer has been coached or influenced to transfer. In some cases it may be appropriate to have joint meetings with customers to manage the risks of communications being misinterpreted by either of the firms, or by the customer. Firms also need to encourage clients to disclose all their details to assess whether they are vulnerable. The watchdog said it will continue to monitor how firms are meeting expectations and “take swift action” where it sees malpractice. Consumers in vulnerable circumstances may be at greater risk of harm if things go wrong, the FCA warned. The risk of harm is mitigated, the FCA said, when firms explain clearly how the features of DB and DC schemes may assist consumers with characteristics of vulnerability, firms respond flexibly to consumers’ needs - for example to change the channels for advice from online to face to face services, firms recognise that consumers in financial distress may need financial guidance and signposting to other organisations that can help them, like MoneyHelper, and not transfer advice. Characteristics of vulnerability, like financial literacy, might also impact a firm’s ability to assess attitude to transfer risk. The FCA said that while it was watching for signs of poor advice there were many good outcomes with pension transfers, particularly where firms fact check for vulnerable characteristics, make adjustment to assist vulnerable clients, carry out 'horizon scanning' and identify individuals needing debt management advice.

FCA updates guidance on transfers and vulnerable clients

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