You don't need to include cost comparisons in pension switching reports ...

... or so I heard today, from two different sources!

What are everyone's thoughts on this? I've always thought it was one of the things that should absolutely be included to enable the client to make an informed choice about the recommendation being made, and until today I hadn't heard anyone suggest otherwise. Have I missed a recent change in guidance or is this a consequence of Consumer Duty and people potentially becoming overzealous (in my opinion, obviously) at slimming down their reports?


  • There is no rule you have to include it in a suitability letter, although clearly it will impact your advice. We have removed the old comparison tables from our reports but mention the comparison as either rationale for the transfer if cheaper, or a disadvantage if more expensive. So we still do it, we just don't provide the full details in the report but if a client asks, it is held is a separate client friendly research file.

  • The basic regulatory approach to this is first contained in the FSA thematic review into the quality of advice on pension switching, from way back in 2008. In it, you will find the following key wording:

    We assessed advice as unsuitable when the outcome was the customer switching into
    one of the following:
    A more expensive pension in order to consolidate different pension schemes, but where the extra cost was not explained or justified to the customer.

    The document goes on to provide both good and bad practice in this and other areas.

    In FG12-16, an FSA suitability review into replacement business and CIPs, it states:

    We continue to identify firms failing to consider the impact and suitability of additional charges when conducting replacement business. Several firms in our review failed to consider the costs and features of the existing investment, and were unable to quantify the additional charges associated with the new investment. In addition, several firms failed to provide a comparison of the costs of the existing investment and the new recommendation in a way the client was likely to understand.

    We expect firms to consider the issue of cost for all recommendations to replace a client’s existing investment.

    Where additional costs apply, firms must judge whether they are suitable in light of the needs and objectives of the client. Additional costs may be justifiable where they are associated with a specific benefit that is valued by the client. Firms should disclose any difference in the cost in a way that is fair, clear and not misleading.

    This 2012 document was still being referenced as source material in the FCA's Assessing Suitability review of 2017.

    There is no definitive RULE in COBS, or elsewhere, stating you MUST include a cost comparison in a suitability report.

    However, it baffles me why anyone would try and push against including one for at least two reasons:

    1. The text above, from two thematic reviews, which spans 2008 - 2017 and to my knowledge hasn't been watered down by anything since then.
    2. The fact that a cost comparison in a report, has clear value to support the advice. If it's cheaper, BOOM, it's cheaper. If it's more expensive, well here's how much more expensive and why that's worth paying.

    I'm more than willing to listen to arguments against this, but for the sake of half a page in a report and in the face of clear regulatory expectation to include it, why would you even bother making the opposing case?

    Benjamin Fabi 
  • GarethMGarethM Member

    I don't think there's a good argument for not including one. If i'm replacing one thing with another (not necessarily investments or pensions), one of the first things I look at is cost. I'm sure any client will be the same. This is not so much a regulatory issue as a transparency one in my opinion.

    Sometimes I think we get a bit bogged down in stripping down reports and suitability letters, and lose sight of what we're actually trying to achieve, which is just clear, fair advice.

  • HR246HR246 Member

    Thanks for everyone's thoughts on this. I hadn't seen a rule anywhere stating that you have to include a cost comparison, but always thought it was best practice based on the guidance mentioned by benjaminfabi, and also other things I've read from people such as Rory Percival.

    I'd never heard anyone argue against it (or seen a template without a cost comparison for replacement business) until yesterday, when I heard it from 2 separate sources. That made me wonder if some new guidance had been issued specifically against including cost comparisons that passed me by.

    If that's not the case then I'll continue to include cost comparisons in my reports as I think, like GarethM said, it helps with transparency and providing clear, fair advice. IMO the difference in the costs (and not just whether the new plan is cheaper or more expensive, but by how much exactly) could impact the client's decision to transfer/retain the existing plan and for that reason I feel more comfortable including a comparison.

  • I think that's the best way.

    The rules on all this are very simple. Unless you're in DB transfer world, there is very little in the way of prescriptive content for a suitability report.

    As Gareth says, clear and fair.

    Benjamin Fabi 
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