The FCA announced today confirmation that they will be reviewing the FG17/9 guidance by the end of 2021. The FCA also took the opportunity to highlight its expectation on adviser charges and how they should be incorporated into a redress calculation.
Most of what is stated is well known to actuarial specialists such as Congruent but we do need to highlight the following specific points:
“Regular adviser charges should be assumed to continue in full, at the current level.” and
Firms should allow for ongoing adviser charges in redress calculations. In line with Principle 6 and the requirement to handle complaints fairly under DISP, firms should not withdraw or change the cost of ongoing advice services without good reason.
There are different situations to be considered. For cases where the customer has not reached their scheme normal retirement age the following comments apply (for “actual loss” cases FCA has provided additional guidance which is self-explanatory).
Where the on-going relationship is maintained with the customer the current charges are known and can be allowed for in the calculation of redress. The method is effectively to calculate the value of the scheme benefits and then to increase that result by the capitalised value of the ongoing current charges. In theory the adviser could reduce the charges that it makes, and hence reduce the amount of redress, but FCA says this cannot be done without good reason.
Where the ongoing relationship is with a different adviser the current charges may not be known immediately. Congruent suggests that a redress calculation may be carried out initially on the basis of an assumption of charges at the upper end of what occurs in the market and if there is no loss that can be communicated provided the customer is told what assumption was made and asked to confirm that current charges are no higher. If the result of this first calculation is that there is a loss then the customer must be asked for the exact level of current charges and the calculation repeated.
Obviously there is a further issue to consider if redress will be paid into a different pension arrangement. FCA has also addressed the question of redress paid as cash.
The statement from FCA can be found at: