Defined Benefit Transfer Without a Pension Transfer Specialist
Meridian Wealth Partners is a directly authorised firm with permission to advise on investments and arrange deals. Its only pension transfer specialist, who held the FCA-recognised qualification, left eight weeks ago and has not been replaced. A 57-year-old client with a defined benefit pension has a cash equivalent transfer value of £720,000. He wants to transfer to a SIPP and invest 40% in enterprise investment scheme shares and 20% in unlisted companies. He says he has read about EIS, does not want 'all the paperwork', and wants to sign the discharge form so the firm can 'just process it'. The advising adviser is Level 4 qualified but has no pension transfer qualification. The compliance officer suggests treating the case as execution-only because the client is adamant. The SIPP provider has asked for confirmation that advice has been given.
1. Which regulated activities are involved, and can Meridian accept the client's instruction on an execution-only basis? Explain your reasoning.
Read the worked answer
Meridian is dealing with two regulated activities: advising on a pension transfer (advising on investments) and arranging the transfer/deal. The client's DB rights are a relevant investment, and the firm needs the specific FCA permission for advising on pension transfers and pension opt-outs, not just a general 'advising on investments' permission. Because the only pension transfer specialist has left, the firm cannot currently give the required advice: a pension transfer specialist must be involved and sign off the recommendation.
The client cannot turn this into execution-only business. FCA pension rules require advice on a DB transfer; a firm may act for an insistent client only after a personal recommendation and appropriate documentation, not on a 'just process it' basis. Accepting the instruction without advice would breach COBS 19.1 and the suitability rules, and if the firm lacks the permission it would also breach the general prohibition in s.19 FSMA (a criminal offence). The compliance officer's suggestion is therefore wrong. The firm should decline to act and should not confirm to the SIPP provider that advice has been given.
2. What suitability analysis and disclosures are required before any transfer recommendation, and why is the client's wish to invest in EIS not determinative?
Read the worked answer
Before any recommendation the firm must carry out a COBS 9 suitability assessment: the client's objectives, financial situation, existing pension benefits, risk tolerance, capacity for loss, knowledge and experience. For a DB transfer, COBS 19.1 adds specific requirements: an appropriate pension transfer analysis (APTA) comparing the DB benefits (inflation linking, spouse's pension, death benefits, employer covenant) with the SIPP, and a transfer value comparator (TVC) showing the capital needed to replicate the DB income. The adviser must consider charges, loss of guaranteed benefits and the critical yield.
The client's wish to invest 40% in EIS and 20% in unlisted shares is not determinative. Those are high-risk, illiquid investments; 60% of the fund in such assets would be concentrated and unsuitable for most retirement planning. The destination analysis must show the SIPP investments are suitable, not merely desired. The adviser must also disclose charges and any conflict, and must not use contingent charging for a DB transfer (generally banned). If the analysis does not support a transfer, the firm must recommend against it and must not facilitate it.
3. How should the firm respond to the client's insistence and to the SIPP provider's request for confirmation?
Read the worked answer
The firm should explain in writing that advice is mandatory, that it cannot act execution-only, and that it currently has no pension transfer specialist able to sign off the advice. It should not accept the discharge form or transfer instruction, and it must not tell the SIPP provider that advice has been given when it has not; that would be misleading and would breach Principle 7 and potentially amount to a misrepresentation.
If the client wants to proceed, the firm can offer factual information but should refer him to a firm with the relevant permission and specialist. It should document the client's insistence and the reason for declining. The firm should also review whether it has been carrying on pension transfer business since the specialist left; if so, it may need to notify the FCA under SUP 15.3 and consider redress. The client's insistence does not override the rules or the firm's obligation to act in his best interests.