DB Transfer Workshop

The APCC (Association of Professional Compliant Consultants) arranged an FCA DB Transfer Workshop this week as part of the Live and Local events. The meeting was delivered by the FCA and the overall focus was about understanding their approach to DB transfers. 

The meeting did not bring any new surprises to the table but we think that this is a good opportunity to highlight the points raised and give you a ‘heads up’ on what you should concentrate on in your DB reports.

KYC

This was the opening topic of the meeting and a particular sore point that was highlighted in several conversations.

  • The concern is that advisers are gathering KYC information for DB transfers in the same format as if this was an investment case which either often skipped several sections or provided only basic information such as – Pensions – Yes/No
  • The FCA state that DB KYC should be more detailed and include much more information on the client’s other assists, existing pensions, protection policies & cash reserves to ensure a full picture of the client’s wealth is gathered and all alternative options have been fully explored.
  • There were also discussions in regards the client’s income and expenditure needs now and at retirement. DB transfers should evidence the expected income need / want in retirement and this must be included in the KYC data.

Attitude to transfer risk

The requirement for addressing the client’s attitude to transfer risk was not always addressed which caused concern to the panel.

  • There were some examples seen that addressed this as a binary answer and supplied questions that the client could only as ‘Yes or No’. The key is to use any prompts as a discussion area with the client to establish their understanding and to record this within the MiFID required notes to evidence this.

Establishing Needs & Objectives

No surprise that this was a concern. This is an area that often lacks any true client objectives and this was also an issue that annoyed the FCA!

  • The common requests for wanting ‘greater flexibility’ is NOT a true objective and was something that as seen in too many cases. Some objectives were not detailed sufficiently and therefore it was hard to see if this was realistic to achieve.  There were also cases that conflicted in the client’s requirements by giving capital to family but figures would not support the income also required if this was done.
  • The need to preserve death benefits was questioned.  The FCA stated that pensions were always designed to provide an income for life for the individual. They questioned why they see so much focus on preserving death benefits within reports when this is not the primary goal of a pension.  
  • The suitability report layout should clearly explain the advice in two parts.  Advising on transferring out and advising on where to transfer.
  • Some cashflows were used to support the income in retirement included the value of the main residence within all the assets which inflated the cash holdings. The reports lacked any validation to say why this was included or how this impacted the expenditure if this was not an available asset
  • Some report stated that there was a history of poor health or shortened life expectancy within the family to justify the need to provide a greater death benefit to dependents. This was not evidenced sufficiently or lacked any sufficient proof that this may happen to the client.

Recommendations

  • After addressing all other options and considerations, the report should be prioritised to highlight the important areas for the client to read.
  • Insistent client processes were discussed, the FCA stated that caution should be taken when firms advertise this facility and it should not be seen as an option available before advice is made.
  • The recommendations should always give a clear and balanced presentation of Advantages and Disadvantages but generally this was often bias in favour of more Advantages.
  • They would like to see more cases that link the recommendation back to the objectives and explained the reasons for the recommendation and if any objectives could not be achieved.

Other News

Following the PS18/20 Improving the quality of pension transfer advice, they are looking into charging structures and will consult again in H1 2019.

The feedback on the FCA’s DB Transfer survey, (DB4) which was sent out at the end of 2018, is currently being analysed and will start to impact in a “handful of weeks” according to the FCA. This is likely to include ‘further engagement’ with key stakeholders and may involve ‘education for firms’, and assessment for those who are significantly involved!

Don’t forget to check out Apricity’s Upcoming Events page, to sign up for one of our webinars or masterclasses.

DB Transfer Workshop