If a firm goes out of business before the client's NRD then at least the estimated redress has been ring-fenced, and any balancing payment could be topped up by the likes of the Financial Services Compensation Scheme.
Although this will require some hefty changes to legislation, this kind of solution is not impossible. And that is important to understand. These solutions are not impossible.
When you look at the existing redress guidance and the proposed redress guidance, the significant client detriment created smacks you straight in the face. And this can not be ignored.
If we are to put unsuitable DB advice right, we have to make sure that each and every client who has received unsuitable advice is offered the opportunity to secure their benefits again. For those who decide they do not want a secure income, then they can refuse the redress and continue with their existing DC scheme.
If, however, we throw more cash into their DC pot, or worse still, their bank account, we are then leaving the client exposed to future unknown investment risk, future unknown inflation risk, as well as the risk of overspending. In addition, many of these clients are likely to be deemed to have low levels of knowledge or experience, and often vulnerability factors, that mean it is highly unlikely that a risk-based solution is suitable.
It simply cannot be argued that any form of redress as a cash sum to a DC pot or bank account is suitable for a client who has been deemed to have received unsuitable pension transfer advice. And by making payments to clients in this way is not only inappropriate, it creates client detriment as you are simply augmenting an unsuitable solution.
There is no other place in the FCA handbook that encourages an unsuitable solution to be augmented. And there is absolutely no place for that stance when it comes to pension transfer redress.
As an industry we must highlight when things need to be changed, and we must fight for that change. The FCA would not accept from a firm that something was ‘too difficult so we didn’t put the client’s best interests first’. So we as an industry should not accept that kind of stance from the FCA. And making that clear in the consultation response is vital.
