Effective triage will help regulate transfers

Effective triage will help regulate transfers

Q: How can I continue to advise clients on defined benefit transfers?

A: Those of us who have been in the financial advice sector for a long time will remember the last painful and costly pension review in 1994.

Sadly, history seems to be repeating itself. Concern over the proliferation of DB transfers continues, suggesting the sector’s failure to learn from past mistakes.

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Data published by the Financial Conduct Authority on the size and value of the DB pension advice market revealed some concerning statistics.

In particular, as many as69 per cent of clients receiving advice on DB pension transfers were recommended to transfer – a figure contrary to the FCA’s stance that transfers are unlikely to be suitable for most clients.

Couple this with the regulator’s findings in December 2018 that transfer advice was suitable in less than 50 per cent of cases and you have a real problem.

Recognising the risk, some companies are already shying away from providing DB transfer advice.

But this could limit the availability of advice, which may also be a poor outcome for clients. A transfer, after all, will be right for some.

So, how can you continue to advise on DB transfers while controlling the risks to which you and your clients are exposed?

The FCA considers a well-constructed and objective triage process to be good practice.

So it is likely the regulator is disappointed that of the 3,000-odd companies with transfer permissions, only 44 per cent reported data on clients who had not proceeded after receiving initial guidance.

This suggests more than half of companies do nothave an effective triage service in place. 

Clients need to be given sufficient information about the risks of transfer, and about safeguarded and flexible benefits. This lets them decide whether to seek advice in the first place.

It also helps empower them to focus on the long-term value of the scheme rather than the transfer value.

Adopting a stage-gated process that includes a triage service is ideal.

Here, a set of predefined ‘rules’ must be met for the client to proceed to the next stage. This can help them avoid unnecessary or excessive advice charges.

An effective triage service must educate the client with relevant information and present it in a balanced way so that it does not steer them down a particular path.

Triage should be ‘guidance only’, so be careful not to stray into providing regulated advice or personalising the information to the client’s needs and circumstances.

The advice boundary can be very difficult to navigate.

Clear disclosure will not only help clients understand the process and possible outcomes, but will clarify at what stage they might receive a personal recommendation and the costs they can expect.

James Marshall is associate director at TCC