Transfer value analysis should be dropped as the most important determinant in retirement saving decision-making because it is costly and because critical yields are irrelevant in many cases says the Association of Professional Financial Advisers (APFA).
In its response to the FCA’s Consultation Paper 15/30 on Pension Reforms: Proposed changes to our rules and guidance, APFA argues that while TVA may be relevant where a client is looking for best value and nothing else, in reality for most individuals under the new pensions regime, other priorities will either take precedence or be just as important.
APFA says the pension reforms render a calculation in every situation a potential waste of time and unnecessary cost for clients. The results regarding a customer’s goals from a soft fact-find are critical, in some circumstances making calculating the critical yield irrelevant, with clients potentially choosing to prioritise other factors, such as control of their money, it says.
APFA has also called for reform of the Financial Ombudsman Service (FOS) to encourage greater adviser certainty when it comes to transacting insistent client business.
It proposes that a safe-harbour be provided for those advisers who follow a certain set of rules or the approach outlined in FCA best practice, which could involve getting the client themselves to put in writing and in their own words an acknowledgement that they are proceeding against advice.
The body has also called for the abolition of commission on execution-only annuity sales.
APFA director general Chris Hannant says: “Pensions have undergone an unprecedented level of change over the last few years and the government has made it clear that good financial advice is at the heart of its pension freedoms. It is therefore vital that the FCA updates its rules to protect consumers and give greater certainty to advisers operating in the new pensions reality.
“We believe that key FCA reforms must include a significant change in approach to TVA and greater certainty for advisers regarding liability in transacting insistent client business. The rules in these areas in particular need updating given recent pension policy changes.
“Reform of the FOS is also necessary, not least the creation of an impartial and independent appeal body, to give advisers the confidence they need to invest and innovate.
“The FCA should also take into account the results of its own study on the outcomes between advised and non-advised options, and adjust its rules to level the playing field between the two.”