Learning & Development Event Regulatory Update Spring 2015

Learning Objectives Identification of changes to the advice process following pension reforms Understanding the need for research and due diligence to support the advice process Awareness of the latest regulatory developments Understanding of the key areas of regulatory focus over the coming twelve months

Pensions – The Journey

Advice Cycle Changes?

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Professional Indemnity

Insurers Views? FAD / UFPLS Full Fund Withdrawal Advised / Non-Advised Insistent Clients Scope of Permissions

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Clear, Fair and Not Misleading / Balanced Targeting Clients Existing clients only MAS Directory Advertise Execution Only services Phone Website Clear, Fair and Not Misleading / Balanced

Who do you want to deal with? Type of Clients? Who do you want to deal with? Clients with a minimum level of retirement funds Clients who provide a direct instruction Vulnerable Clients? Debts Inexperienced investors

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Disclosure Cost of Advice? Advice only or Advice and arrangement of a recommended solution Be careful of contingency charging – Conflict of Interest?

Factfinding Need for income Capital expectations Cashflow modelling State benefit entitlement Use open ended questions

Verify and utilise information Gathering Information Verify and utilise information

ELECTRONIC VERIFICATION THE SAFEST OPTION Client Verification EU Money Laundering Directive – The Fourth! Wider definition of Politically Exposed Persons More checks on Companies and Trusts Government Sanctions Lists and other registers ELECTRONIC VERIFICATION THE SAFEST OPTION

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Repeatable process that includes; Risk questions Capacity for loss Client Risk Repeatable process that includes; Risk questions Capacity for loss Need for income Desire for capital Experience and knowledge Information which is not in the factfind

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Analysis

Combinations of the above The solution Flexi Access Drawdown Uncrystallised Fund Pension Lump Sum Annuity Combinations of the above Full withdrawal Facilitating a Switch or Transfer

Pension Transfers Change to the Regulated Activities Order Pension Schemes Bill New definition of a Transfer No longer exempt if crystallising benefits Some Personal Pensions included Exempt if transferring to an annuity?

Regulated Activities Order This brings pensions that were regulated by The Pensions Regulator into FCA remit DB to DC or DC to DC schemes become an FCA regulated activity Firms must apply for FCA authorisation The RAO does not establish the regulatory framework or define a pension transfer

Pension Schemes Bill Applies to trustees of DB schemes If a member transfers/converts to flexible benefits the trustees must check the member has received advice This is unless; the member’s scheme value is less than £30K, or; an annuity is being purchased

FCA Definition of a Transfer Proposal includes; Transfers from and to occupational schemes Transfer/conversion of DB/DC schemes to access flexible benefits Transfer DB/DC schemes to a PP or SHP Transfer of safeguarded benefits to a PP or SHP Safeguarded benefits including GARs in PPs

Pension Transfer Specialists PTS must conduct or check advice No additional qualifications are required GARs in PP – PTS not required but permission needed TVAS required for all DB schemes transfers

FCA Definition of a Transfer These proposals are under Consultation but take effect immediately! Final rules expected June 15

No action if firm already authorised for transfers Actions? No action if firm already authorised for transfers Apply for a Variation of Permission Qualification required Need to demonstrate knowledge and experience! Make a referral

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

A new world of changing products Research Secured income OMO Lifestyle enhancements Flexibility Features Options Benefits A new world of changing products

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Presenting the Solution Detail in the Suitability Report; Needs and circumstances Why solution(s) recommended Risks/Disadvantages Tax implications Sustainability of income State benefits

Rejected Recommendations

Insistent Clients

Requests full fund withdrawal Case Study Jeff & Anne Residential property State pensions £12,058 Committed expenditure £12,000 Discretionary spend £2,500 PP fund of £50,000 = £2,400 annuity Requests full fund withdrawal

JEFF Case Study ANNE State Pension £7,714 PP fund £50,000 Committed Expenditure £6,000 Discretionary Spend £1,800 Requests £40,000 withdrawal for Buy to Let purchase JEFF

Advice Cycle ATR Compliance Client Suitability & Best Interest PII Review Monitor & Review Target Clients Present Solution Fact- Find Regulation Regulation Research ATR Analysis Compliance

Reviews

Business Strategy Review More people will need advice at retirement New directories offer marketing opportunities DB scheme members must take advice before transferring IHT planning opportunities NISA flexibilities

Business Strategy Review Review sales process Resource/capacity for new clients High risk? PI cover Scope of permissions Regulatory risk?

FCA Risk Outlook Are firms helping consumers make the right choices following pension reforms Annuity sales practices MiFID II Asset Managers – Fund Charges Due Diligence

Due Diligence Review Pack

Any questions?