Have you covered off with the client how transfers are valued and the likelihood, or otherwise, of values rising or falling if the transfer is postponed?
2. Partial transfers
As part of the advice process you explore all the options available to meet the client’s needs and objectives.
Most clients’ income requirements will be split into two parts – discretionary or essential spend.
If a client begins to struggle for income and challenges any advice, then it’s important that all options have been identified. You don’t want hindsight to throw up an available option that wasn’t considered and has led to client loss.
A partial DB transfer may be possible and this could be the best of both worlds. The opportunity of the risks of providing a secure lifetime income to meet essential spend being borne by the scheme, while accepting the risks with the transfer balance to allow the flexibility and other advantages of the personal arrangement could be the best of both worlds.
3. Transferred risk (partial or otherwise)
Suitability is assessing clients’ circumstances, attitude to risk and capacity for loss. You then identify needs and objectives, resulting in a recommendation of something suitable to meet them that they understand.
Fundamentally, clients have to understand that the decision they are making is to take away the safety blanket of the scheme/employer being responsible for taking on all the risks of providing them and their family with an income for retirement and transferring these risks and responsibilities onto themselves.
These risks could have a major impact on the client and their family and include investment, longevity, inflation, credit and capital risk. Some may be happy to take a risk with their retirement plans for the benefits or advantages it may provide. Others are 'risk averse', not wanting to put their retirement provision at risk and most are in between.
Wherever they land on the risk spectrum, the crux of the matter is this: the benefit perceived by transferring should be “real” and they should be willing to take on the risk of and crucially, able to absorb, any losses if those risks materialise. Anyone unwilling or unable should not be transferred.
Understanding the risks you are taking allows understanding of the worth of the benefit. What have you got on file explaining and showing the customer understood the transference of risk?
4. Income shape
Today it’s highly unlikely a client will need a fixed amount of income that increases by inflation until death. It will probably be lumpy or start high as they enter retirement, get lower the longer it goes on and then possibly increase as care needs/ill health takes hold.
