Defined Benefit 

10 tips for delivering suitable DB pension transfer advice

  • To avoid some obvious mistakes in advising on DB transfers
  • To learn some important tips on pensions transfers
  • To learn more about managing clients in transfers
CPD
Approx.30min
10 tips for delivering suitable DB pension transfer advice

Defined benefit (DB) pension transfers have become much more popular over the last few years reflecting the advent of the pension freedoms and the temptingly generous transfer values on offer. 

Firms offering transfer advice should be mindful of how they can reduce the risks of their advice being second guessed by the FCA or Financial Ombudsman Service (Fos) to acceptable levels. Based on recent work we have done for firms here are our top 10 tips for demonstrating that your DB pension transfer advice is suitable.

1) Manage client expectations at the outset

Sometimes it is evident from the files we review that a client sees the adviser’s role as a largely administrative process to tick the regulatory boxes and implement a decision they have already effectively taken. You need to show you have disabused the client of any such assumptions. You are an adviser, not an order taker, and this is a complex piece of advice. Before you take the case on, ask a few targeted questions to find out why the client wishes to transfer and to establish an outline of their financial circumstances and plans. If the case for transferring looks weak, turn it down – or at least warn the client there is a strong chance you will end up recommending against the transfer.

2) Contingent charging? Just say no

DB transfer advice involves unique risks and challenges, not least because many clients resent having to receive and pay for it in the first place. So it is essential that the way you are paid for your work does not put you under unnecessary pressure by creating conflicts of interest. Make it crystal clear to clients that they must pay for your advice, regardless of whether you recommend that they proceed with the transfer. If the client will not accept this, turn them away. No exceptions. It is fine to charge an implementation fee if you do end up facilitating the transfer, but this should not be a disproportionately large proportion of the total fee. In other words, make sure you charge enough for the advice and recommendation to allow you to walk away with an acceptable profit for your business if no transfer takes place.

3) Do not take on a race against short transfer value deadlines

When a client receives a transfer value (CETV) from their DB scheme, it will usually be guaranteed for three months. If the client comes to you for advice with less than a month of the deadline left, ask them why they left it so late. Perhaps they have already received advice elsewhere and did not like the answer? In any case, it is not your fault there is not much time left to obtain the DB scheme details and do the analysis. So do not be bounced into racing against the CETV deadline. It is more important to get the advice right than to hit the deadline. Either turn the case away, or make sure the client understands why the process cannot be rushed, that you are not promising to hit the deadline and that it is the client’s risk if their next CETV is lower.

Comments

CPD
Approx.30min
  1. What is the primary task of an adviser in relation to his client when conducting a transfer, according to Neil Walkling?

  2. According to Neil Walkling, if a client comes to you with a month left on their CETV transfer, an adviser should still aim to meet that deadline. True or false?

  3. Which of the following tax issues might be affected by doing a DB transfer?

  4. According to Neil Walkling what is the most common reason for coming unstuck on DB transfers?

  5. According to Neil Walkling, if an adviser makes the transfer against his recommendation, how can he protect himself from it?

  6. According to Neil Walkling, when should you use an independent external expert to review a sample of your DB transfer client files to test whether they evidence suitability?

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You should now know…

  • To avoid some obvious mistakes in advising on DB transfers
  • To learn some important tips on pensions transfers
  • To learn more about managing clients in transfers

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