The Financial Supervision Commission is one of the few regulators around the world, which notably include the UK, to issue such specific guidance, and it has done so using a range of examples and lists of factors to consider.
In all cases, it expects advisers to take account of the nature of the arrangements, and ensure that advisers document and evidence the basis of all discussions, decisions and recommendations to clients.
“If there is any information that the financial adviser is unable to obtain, this should be fully documented and any limitations on advice provided must be transparently explained to the client in writing,” it states.
All recommendations must be demonstrably in the clients’ best interests, so where investment flexibility is stated as the reason for the recommendation “the adviser must demonstrate that they have considered whether the client will really benefit from utilising the more flexible arrangements.”
It warns that a potential new pension scheme may offer access to many more funds, “whereas the ceding scheme provides access to fewer funds but those funds are suitable to meet the clients needs and risk appetite.”
The adviser may also quote poor fund performance within the ceding scheme as the reason for the recommendation to transfer. Here, analysis of performance should be over a five year period, broken down annually and where a product has not been available for the preceding five years, performance should be since launch, broken down at least annually.
Another transfer reason may be that there is more flexibility in a SIPP as opposed to an annuity type product. In this case the adviser should consider whether the client has specified currently or previously that they are looking for additional flexibility and any other specific needs, including early retirement.
The FSC highlights that the charges must be “sufficiently transparent and the client understands how they operate at each level of the product and how they affect the ultimate return. It is not sufficient to disclose charges at top level only. All charges and commissions should be fully and separately disclosed to the client in clear, accessible language.”
To read the full guidance notes, click here.