COBS 19.1A Abridged advice on pension transfers and pension conversions

1This guidance applies where a firm has given abridged advice to a retail client and the client wishes to proceed to full pension transfer or conversion advice.

1. (1)

   Where the outcome of the abridged advice was a personal recommendation that the client remains in their ceding arrangement, the FCA’s expectation is that in most cases the outcome of full pension transfer or conversion advice will be a personal recommendation that the client remains in their ceding arrangement.

2. (2)

   Where the outcome was a statement that the firm was unable to take a view on whether it would be in the client’s best interests to transfer or convert without undertaking full pension transfer or conversion advice, the FCA’s expectation is that the outcome of full pension transfer or conversion advice could still be a personal recommendation that the client remains in their ceding arrangement.

1Where a firm uses a pension transfer specialist to check its proposed abridged advice it should have regard to the guidance in COBS 19.1.1BG.

1If a firm provides a suitability report to a retail client in accordance with COBS 9.4.2AR it should include (in addition to the requirements in COBS 9.4):

1. (1)

   a summary of the advantages and disadvantages of its personal recommendation; and

2. (2)

   a summary of any other material information that would assist the client in understanding the basis of the advice.

1. (1)

   1This guidance relates to a firm’s obligations to assess suitability in accordance with COBS 9.2.1R to 9.2.3R.

2. (2)

   A firm should start by assuming that a pension transfer or pension conversion will not be suitable.

3. (3)

   For the purposes of the provision of abridged advice, the factors a firm should take into account include:

   1. (a)

      the retail client’s intentions for accessing pension benefits;

   2. (b)

      the retail client’s attitude to, and understanding of the risk of, giving up safeguarded benefits for flexible benefits, taking into account the following factors:

      1. (i)

         the risks and benefits of staying in the ceding arrangement;

      2. (ii)

         the risks and benefits of transferring from the ceding arrangement into an arrangement with flexible benefits;

      3. (iii)

         the retail client’s attitude to certainty of income in retirement;

      4. (iv)

         whether the retail client would be likely to access funds in an arrangement with flexible benefits in an unplanned way;

      5. (v)

         the likely impact of (iv) on the sustainability of the funds over time;

      6. (vi)

         the retail client’s attitude to, and experience of, managing investments or paying for advice on investments so long as the funds last; and

      7. (vii)

         the retail client’s attitude to any restrictions on their ability to access funds in the ceding arrangement;

   3. (c)

      the retail client’s realistic retirement income needs including:

      1. (i)

         how they can be achieved;

      2. (ii)

         the role played by safeguarded benefits in achieving them; and

      3. (iii)

         the consequent impact on those needs of a pension transfer or pension conversion, including any trade-offs in broad terms;

   4. (d)

      alternative ways to achieve the retail client’s objectives instead of the pension transfer or pension conversion;

   5. (e)

      the retail client’s attitude to, and understanding of, investment risk;

4. (4)

   If a firm uses a risk profiling tool or software to assess a retail client’s attitude to the risk in (3)(b) it should:

   1. (a)

      check whether the tool or software is capable of taking into account at least those factors listed in (3)(b)(i) to (vii); and

   2. (b)

      ensure that those factors which are not included are factored into the firm’s assessment of the client’s attitude to risk.

5. (5)

   When a firm asks questions about a retail client’s attitude to the risk in 3(b) it should ensure they are fair, clear and not misleading in accordance with COBS 4.

1. (1)

   1A firm may provide abridged advice to a retail client free of charge. However, if they do, and the conclusion is that they are unable to give a personal recommendation without carrying out full advice on pension transfers or conversions, a firm will need to ensure it is able to demonstrate how it still complies with Principle 8 (Conflicts of interest), and the rules on contingent charging (COBS 19.1B).

2. (2)

   A firm that charges a client twice for what is, in essence, the same service is likely to be acting inconsistently with Principle 2, Principle 6 and Principle 8. As a result, a firm will be expected to offset the adviser charges paid by a retail client for the provision of abridged advice from the amount it would have otherwise charged that retail client for the provision of full pension transfer or conversion advice.