Busy DB’s

Wow – DB land has been busy recently (hence the somewhat spurious title!). There’s been a whole raft of information and publications on the topic of defined benefit transfers in the last few days. Where to start?

Well, firstly, you’ve probably seen the news that the FCA has launched a snazzy spreadsheet that they have been using to help them assess the suitability of defined benefit transfer cases. Immediate impressions upon opening it were to experience a touch of PTSD at the pension switching tool they previously shared, and we completed hundreds of!

This one is, understandably, much more detailed and I don’t envy the case reviewers that have had to sit and complete these as part of the case check; it is not a quick job. The key with these is not necessarily to just fill them in, on every case, stick them on file, and assume that makes the advice compliant. Many of the questions, that act as a red flag to the FCA, are subjective. For example:

Q: Approach to capturing objectives?
Potential answers:
• Generic
• Free-text

Any internal review is likely to be selecting ‘free-text’ as the answer. Whereas the FCA might view a file and feel that although the objectives have, technically, been written as ‘free-text’, the depth of them is actually pretty generic.

Instead, the secret is to look at the areas of review, what the FCA focuses on, and then assess and, where necessary, improve your process on these areas. Putting aside insistent clients for now (you should have a robust insistent client process, that is always followed, regardless of the advice type), the key areas from the snazzily named DBAAT are:

  1. Information – they are looking here to ensure full KYC has been obtained on the client prior to undertaking any advice. And we mean FULL information. On the client, on their expenditure in retirement, on their risk (including capacity for loss), on the existing scheme, on the new scheme. This makes absolute sense; it’s impossible to give advice without having all the data to hand, and they’re checking here that the necessary information is gathered robustly. Have a look at this tab to check your processes, to ensure all the required information is gathered by default.
  2. Suitability of transfer – this is actually less subjective, and gives very specific examples of what the FCA deem unsuitable. These follow the guidance they have previously published and, as you can see from the snip below, any of these being triggered will potentially mean the advice is unsuitable.

    Busy DB's 

    This shows that even if the objectives are written in ‘free-text’, if they are one of these generic ones, no amount of creative wording will prevent it from being considered unsuitable advice.

  3. Suitability of investment advice this should be fairly straight forward for most firms. It comes down to selecting an appropriate provider, fully assessing risk and recommending an appropriate investment portfolio based on this. This should be part of your day-to-day processes, not just specific to DB advice.
  4. Disclosure – in their previous Assessing Suitability Review, the FCA found a high proportion of cases had suitable advice (93.1%) but that a large number of cases had issues with disclosure (41.7%). It’s important to remember that they consider disclosure separately to suitability. The good news is that having a tight process in place can quickly fix any disclosure gaps and ensure this doesn’t cause issues in any future reviews.
  5. Causation – a very interesting tab! This is to be completed where it appears there was unsuitable advice, or the insistent client process, or disclosure, was not compliant. It is focused on the firm’s ‘conduct’, and identifying the issues that resulted in the problematic case. This makes sense under the SM&CR regime; the FCA aren’t just looking at a file, but what has gone wrong within the firm to cause those issues in the first place. It is still a bit ‘tick-boxy’, which we’re never a fan of at Apricity, but it is absolutely right to look at the bigger picture, not just a file in isolation.

The tool and its guidance can be found here. We’ll take a breather for now but watch out for our next blog, we’ll look at the DB Transfer market data, released by the FCA yesterday (18th January 2021).

Cathi Harrison – Founder & Director


Busy DB's

Busy DB's