Learning & Development Regulatory Update Round 2 - 2018

Learning Objectives Understanding the impact of rules made to pension transfer business Gain an understanding on how firms should participate in the sales process when introducing pension transfers Awareness of the latest EU Directives that will shape UK regulation

The FCA Business Plan Financial Advice Market Review Pension Transfers Senior Managers Regime Platforms

Financial Advice Market Review

Financial Advice Market Review (FAMR) The Review Financial Advice Market Review (FAMR) Will it improve access to advice? Will it reduce costs? Reviewing of FAMR

The Review The Paper reminded us to some of the FAMR recommendations: Setting up FCA’s Advice Unit Amending the definition of advice Reducing time spent on suitability reports Reminding firms of their flexibility in adviser charging

FAMR Research Size of the Market 9% of UK adults received regulated advice in last 12 months 82% of which was from an adviser from an advice firm Over 40% received advice regularly 33% received annual reviews Key findings: Quality of Advice “Those who have had regulated financial advice in the last 12 months are generally satisfied with the quality of the service received and the price paid, and there is little shopping around ”

FAMR Research 3% of adults take advice from automated services “this figure may be overestimated given some said earlier they had not received regulated financial advice or paid for the advice they received” 3% of adults used Pension Wise in last 12 months

FAMR Research Reducing time spent on Suitability Reports This is one of, if not, the most time intensive exercises in the advice process The answer…….

PENSION TRANSFERS

The Proposals Pension Transfers More field based reviews PS 18/6 CP 18/7

Questions under consultation Do we need to change the PTS qualification requirements? How should a PTS work with another adviser/firm? Should we introduce guidance for Triage services? What about a report to clients when they are advised NOT to transfer?

Questions under consultation Should we change the definition of a transfer? What about guidance on assessing the attitude to transfer risk? Does Contingent Charging result in bad advice and should we do something about it? How should we treat self-investors?

The Outcome Suitability reports are required for advice not to transfer Transfer risk questions and assessment is now required as part of the suitability rules Self-Investors – adviser needs to account for the destination of the funds Definition of a transfer still under review

Pension Transfer Specialists A PTS will have to hold investment exams and be level 4 qualified? Must be obtained by 1st October 2020 CPD?

Working with other firms/advisers Referrals for transfer advice only PTS must take into account destination of funds Both parties must work together and gather attitude to transfer and investment risk Each party should communicate their advice so it is clear to the client Advice charge? – Use correct agreement

Triage Services This is an initial conversation with a potential client – a free consultation Any indication to stay or leave would be advice “Triage must be educational and present a balanced view of advantages/disadvantages” Firms can refer to FCA’s starting assumption ‘unlikely to be suitable’ but must not provide a TVC

No transfer No fee Contingent Charging Changing rules may have wider implications for firms and customers Contingent charging models and unsuitability is difficult to prove The link between triage and contingency models is recognised and more work will be undertaken No transfer No fee

Triage & Contingent Charging

The Senior Managers & Certification Regime

Senior Managers & Certification Regime The Regime Senior Managers & Certification Regime New guidance confirms responsibilities and other duties We expect more guidance to follow We will provide templates

Platforms

Platform Market Review Switching platforms can be difficult Shopping around can be difficult Model portfolios are difficult to compare Customers are holding too much cash Orphan clients can be charged more

Questions to the advice market Q.- Comparing platform charges – Do existing disclosure requirements go far enough? Firms have to disclose advice charges Platform charges have to be disclosed For MiFID & IDD products there has to be aggregated charges OUR RESPONSE: Is this a call to simplify disclosure requirements but please no more!

Questions to the advice market Q.- What additional costs do firms incur when reviewing platforms and then switching? Reviewing is part of general due diligence For the individual client this would likely be incorporated within the (annual) review The switch could be considered a transactional cost. What is the transactional cost?

Questions to the advice market Switching Platforms! What if you use 1 platform and identify a client would be better off switching? All others! What is the regulatory process for platform switching? Is it a re-direction or a switch? What if there is a platform switching review? What if it moves to a different share class? What if it does not have an existing fund? What if it is a product that needs cancelling i.e. a bond? Would it be classed as a full pension switch? Time out of the market? OUR RESPONSE:   A ‘user friendly’ guide

Questions to the advice market Q. Should adviser payments be turned off for orphan clients? Yes. No one should pay for something they don’t get or need An orphan client is where there is no activity after 12 months How do you determine inactivity? Is it where there has been no trading activity on the account? Can firms provide a service without changing an investment? Would it cause unnecessary trading? OUR RESPONSE: Platforms should liaise with firms where ‘material’ charges are made and no activity is conducted

Questions Over! That concluded the questions directed towards the advisory sector They did raise other concerns that they said would need to be considered We considered these needed further comment before their escalation

Non-monetary benefits Do these tools/services create biases? Exam preparation Model portfolio management Bulk rebalancing / switching Risk profiling / asset allocation Retirement modelling Cash flow forecasting Should they reduce advice charges?

See you in the New Year

Learning Outcomes Understanding the impact of rules made to pension transfer business Gain an understanding on how firms should participate in the sales process when introducing pension transfers Awareness of the latest EU Directives that will shape UK regulation