Triage services should give a balanced and unbiased description of the features of both DB and DC schemes, and how the risks and benefits of both compare.
Information gathering
The adviser must collect enough and the right type of information to know their client. The information must be personal and complete enough to assess suitability; if there are material gaps the adviser cannot make a recommendation.
It may be worthwhile advisers spending time reviewing processes to ask the right open questions to gather the required detail and depth of information regarding the consumer, and FG21/3 has examples of what the FCA sees as good practice.
The FCA wants to see full records detailing consumers’ responses to these questions. It is concerned many advisers’ records are showing information gaps.
Assessing attitude to risk
Advisers need to assess consumers’ attitudes to both transfer risk and investment risk specifically in the context of a DB transfer and giving up safeguarded benefits. Advisers should focus on the consumer’s willingness and ability to take on risk, as well as exploring their capacity for loss.
Using more than just a standard risk-profile questionnaire will help advisers understand the client’s behavioural and emotional response. Advisers need to assess if a safeguarded benefit or a flexible benefit scheme is best suited to the client. For example, asking a client how they manage money may help inform if the client would be likely to access flexible benefits in an unplanned way.
Objectives and needs
Through the information-gathering process the adviser should understand the consumer’s priorities, plans and what motivates them. The FCA is expecting advisers to challenge any false expectations.
Advisers also need to understand their client’s essential income needs and how the DB pension could meet these compared to other assets. They need to assess how a transfer could result in a shortfall or increase in income.
The client’s needs could be split into essential, lifestyle and discretionary. The FCA encourages advisers to challenge consumers’ stated needs, using open questions, to explore if they, or their spouse, have any additional expenditure. This assessment should also cover known future events, for example paying for a child’s wedding. FG21/3 has examples of good practice highlighting the need for detailed personalised information.
It is the adviser’s role to help the client balance their needs and objectives.
Abridged advice
Abridged advice is a short-form advice process that is more affordable than full advice:
- The adviser can give a personal recommendation that the client should not transfer; or
- The adviser can tell the consumer it is unclear whether they would benefit from a pension transfer and check if the consumer wants to continue to full advice.
