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.
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.
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.
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.
Needs & Objectives
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
- 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.
- 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.
recommendations should always give a clear and balanced presentation of
Advantages and Disadvantages but generally this was often bias in favour of
- 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
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.