Your IndustryMay 30 2023

Factors to consider when clients are considering a DB transfer

  • Describe the challenges with abridged advice on DB transfers
  • Explain when a client might get a negative result
  • Identify the impact of a large cash equivalent transfer value
  • Describe the challenges with abridged advice on DB transfers
  • Explain when a client might get a negative result
  • Identify the impact of a large cash equivalent transfer value
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Factors to consider when clients are considering a DB transfer
Get to know your client: when it comes to DB transfers the client’s ‘soft facts’ are vital (Photo: Kzenon/iStock)

Defined benefits transfers have always been a contentious and high-risk area of financial advice, and the British Steel scandal has put them firmly back in the headlines. 

Even before this, the Financial Conduct Authority concluded that the “old” model of thousands of independent financial advisers all separately dealing with a handful of transfers a year increases the potential for consumer detriment. 

The inevitable conclusion is that effective regulation of this area can only be implemented by reducing the market to a relatively small number of specialist IFA companies, and changing the industry to achieve this has been the regulator’s stated aim for several years.

However, as with all aspects of financial advice, whether you are a specialist DB transfer company or a general IFA that retains the relevant permissions and PI, it should still all come back to the consumer and what is in their best interests. 

Following the introduction of abridged advice in 2020, the provision of this — either free or with a limited charge — has become the norm among specialist companies and may well become “best practice” or even a requirement in the future. It is therefore important to consider what types of client factors will have the greatest impact on this simplified version of advice, as well as chargeable “full” advice.

Initial client discussions

First, you need to establish whether the client is a deferred member, still accruing benefits as an active member or has an active salary link. Filtering based on this is a good starting point, because unless the client is definitely planning on retiring, where they are still active in the scheme any advice would be considered an “opt-out” and is therefore even less likely to be appropriate.

Before you obtain a transfer value — assuming the client has not already done so — you can have a conversation about what has motived them to consider the transfer. It is useful at this point to frame your conversations in the context of the FCA’s starting point, which is that a transfer is likely to be unsuitable for the majority of people, unless it can clearly be demonstrated it is in their best interest.

The inevitable conclusion is that effective regulation of DB transfers can only be implemented by reducing the market to a relatively small number of specialist IFA companies

You can discuss the factors of “flexibility, control and death benefits” and gauge the degree of importance, if any, that each of these may carry. 

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