Key themes from feedback on FCA mission consultation

On 3 January 2017, the FCA published a press release setting out the key themes to date, on its consultation paper on its future mission.  The consultation paper was published in October 2016. The key themes are:

1. Desire for clarity and sense of direction. Respondents want a clearer rationale for the FCA's decisions and what it chooses to do and not to do.
2. Vulnerable consumers. Respondents largely agree with affording more protection to vulnerable consumers but have different views on who a vulnerable consumer is and emphasise the need for clear definitions.
3. Rules versus principles. Some respondents want a clear sets of principles for business rather than prescriptive rules, while others want more clarity on existing rules as they feel these are often too vague.
4. Engagement with firms. Respondents think that the FCA should adopt a more active role in sharing lessons learned and good practice. Respondents would like more tailored communications that illustrate risks for their particular market.

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Earning your one per cent

On 15 December 2016, the FCA published a new webpage www.fca.org.uk on initial advice charges for lump sum investments.

HM Treasury and the FCA published their FAMR final report in March 2016. One of the recommendations of the FAMR report concerned the payment of initial advice charges relating to single payment products. It stated that the FCA should take steps to help ensure that firms and advisers are aware of the existing flexibility in the rules on adviser charging.

In response to the recommendation, the webpage explains how the FCA's rules allow some flexibility to firms to allow clients to pay in instalments for advice on a lump sum investment. In particular, the rules require initial adviser charges for a lump sum investment to be paid upfront either as a separate amount paid direct to the adviser or by deduction from the investment amount. However the webpage then dives into the complexity of charging initial fees but spreading them over time, which is effectively lending money, which requires a licence. Most IFAs charge 1% per year in advance, but they need to be clear that apart from the first 1% this is for ongoing servicing and not for the initial work. Confuse that one and you are on a fast track to repaying the client. And the FCA are increasingly looking at what you do for your one per cent.


PTOO transfer values jump 25% in 2017

Defined benefit schemes are now offering better transfers, with lower critical yields than they have for years.

According to the FT some schemes are now paying out 30 to 40 times the annual pension income, which squeezes out a critical yield that obviously comes in at an acceptable level, and some way less than the Beecher’s Brook of 10% per annum required that has made so many transfers in the last decade so hard to justify.

This is driven by the compressed low bond yields that makes it expensive for the Final Salary schemes to match their liabilities with equivalent assets - government gilt edged or at least high grade bonds. At the same time pressure from the Pensions Regulator is forcing companies to do more to lower their risk – and buy more bonds. Add to this the new European pension regulation that forces companies to add yet more cost in governance and controls on their pension funds as highlighted by Lane Clarke www.lcp.uk.com and you have a cocktail of regulation that could well force more companies to wind up their schemes. The IORP II Directive also comes into force this month of January 2017.

Only a fraction of consumers actually know the transfer value of their deferred benefits. According to LCP only five per cent of deferred members actually ask for a transfer value each year, and only ten per cent of these convert the information by way of transfer, meaning half of one per cent transfer each year.

Where do these transfers go?  Well check this – some 25% go to QROPS based in Gibraltar or Malta, and the remainder go to personal pensions, with one per cent to other final salary schemes.

Pressure will continue to grow over the next couple of years until it becomes standard practice to quote transfer values, not only in retirement packs, but also in annual benefit statements and leaver statements. This would be a big change for most schemes and trigger more transfers, potentially reducing the cash in values offered as it becomes less difficult to persuade members to take their liabilities away from the final salary scheme.

Pensions minister Baroness Ross Altman has also transferred two of her own final salary schemes last year. She claimed their value doubled between 204 and 2016. Martin Wolf, the FT chief economic commentator has also recently cashed in his own. Both are married and Ross Altmann has three grown up children. Martin Wolf is reported as saying that to get the full return of his DB transfer value as offered, he would have to live to nearly one hundred AND the pre tax real returns on the investments would have to be zero for decades. "for the latter to be true”, he says “capitalism would truly be dead."

Scandals at TATA British steel, BHS and others also accelerate the demand. During the crisis at Tata, the government reportedly wanted the employer to suspend index linking to reduce the deficit. This didn’t happen, but is something to watch carefully. Again, if index linking went, the exit would be rushed, and values offered would reduce.

Only ten percent of IFAs are able to handle PTOO work, and yet this is set to be the biggest thing in the industry in 2017.  Regardless of our opinion, the FCA still ask all advisers to consider the advice to leave pensions inside the final salary scheme as the default advice option. And bizzarrely they do not require you to be qualified to advise that position. IFAC offer locum’s for small practices and offer qualified PTOOs on hire to IFAs who wish to increase their permissions to take on this work. 

FCA to re-think Licence Exit criteria

Following an Investor’s complaint The Financial Conduct Authority is to re-think the IFA exit process.  Following an investor’s complaint to the FCA Complaints Commissioner, there will be a rethink on how professional indemnity insurance (PII) is mandated for advice firms who wish to de-authorise.

Someone complained to the FCA because they allowed an IFA which had a claim against it to become de-authorised. This meant the investor was no longer protected. Specifically the FOS had no jurisdiction to enforce their ruling and so the client went to the FSCS - which has a compensation cap of just £50,000.  The Complaints Commissioner then recommended the FCA change the way it proceeds with de-authorisations.

IFAs have to tell the FCA of any outstanding claims against them when they de-authorise and they also must hold PII at that point. However, the FCA does not check notifications to PII, and nor do they check to see if the PII is cancelled immediately after de-authorisation.   This is contrary to the old fashioned solicitor indemnity scheme that ensured that partnership firms that went out of practice remained insured for a limited period.

Digital assets

The Sunday Telegraph over the Christmas break raised the question of online passwords to accounts and cloud storage and the need to keep heirs informed of the digital footprint in case of illness or death.   This is, of course, something that did not exist until relatively recently and so many people have forgotten to address this subject.

Many digital assets are photographs saved on a laptop or in the ‘cloud’, but film, music and book collections, frequent flyer points, vouchers, Bitcoins and social media accounts also need consideration. These are often purchased and stored electronically, can also have significant monetary value. Interestingly some e-platform agreements terminate on death, meaning the deceased’s online data is non-transferable – should they get to hear about the death. With high profile clients, this is indeed likely and terms and conditions could lock the executors out.

So when you write a will, make sure that these matters are discussed. Even if an executor has knowledge of the assets, if they do not know the relevant passwords, they will be blocked from accessing them by layers of cyber security and terms and conditions in the agreements. We recommend this is considered by advisers.

• Make an inventory of all digital assets and their passwords in a separate place referred to in the will to be stored alongside the will, but not inside the will. The will is, of course, a public document.
• Make sure the will gifts these assets. Small items can be covered as a chattel, but intellectual property rights, for instance, need consideration.
• Specific authority should be given to the executors to access and manage the digital assets.

Subject Access requests

Customers and employees making ‘subject access requests’ (SARs) under the Data Protection Act 1998 (DPA) for disclosure of the personal data.  You will have to respond within a month from May 2018, but at present you have a leisurely 40 days to respond.   SARs are often made as a fishing expedition for a claim, but consider this.  When responding to an SAR you must be aware of the position of others who may be identifiable from the document(s) to be disclosed. If you can, redact the document so as to remove any possibility of third parties being identified.  If this is impracticable, then think about asking for their consent to disclose.  

If this is not done, or is withheld, then you can weigh up whether disclosure is “reasonable”.  Often if you are in dispute, it may be best to refuse to comply, rather than weaken your defence case at an early stage.  You will need advice on this and don't forget to notify PII of a potential circumstance that may lead to a complaint.

IFAC  improve their Bat offering 

The new customer facing Bat will see improvements and changes throughout the year to make it easier to use. There are apps that we supply

ROBO ADVICE APP FOR IFA FIRMS
brand and add to your own website to allow customers to buy.


AUTO HR FUNCTION
see here to replace your HR function with a machine...
 Staff-intranet
feature allows employees to book flexi-time, holidays and work from home without even speaking to you.

 FCA Invoicing

Many firms receive a demand for yet more  information this week from the FCA.  
Those in the consumer credit business also get their invoice this week.
More data entry is moving to Chrysalis this year...in addition to much the same data entry in Gabriel. 
Alastair.frame@ifac.eu is in charge of the project to upgrade Bat to match the FCA data invoices - speak to him if you have a query on the data entry.  He does this all day, poor Yoric.
Top Tip - check your junk mail settings for FCA communiques.

Back to work now...
from the IFAC team

Charlie Palmer, John Downs, Mark Ellis, Andy Smith, Alastair Frame, Dan Rey, Ken Baksh and Nick Hall.