Bobbi Sills highlights key takeaways from the PFS’s latest pension transfer webinar
The PFS continues to deliver continuing professional development (CPD) for members through live online webinars, all of which are available to view on demand on the PFS ON24 platform.
The recent PFS pension transfer series offered nine hours of dedicated CPD to pension transfer specialists, focusing on what they should be aware of following recent guidance issued by the Financial Conduct Authority (FCA).
Throughout the series, we heard from pension specialists and the PFS about good practice for advising on defined benefit (DB) pension transfers. Here are four key takeaways:
1) No ‘one size fits all’ approach
The first webinar looked at areas where the FCA has identified shortcomings in pension advice process.
Royal London’s Fiona Hanrahan, business development manager, and Justin Corliss, senior pensions intermediary development and technical manager, shed light on the regulator’s expectations as outlined in the three policy statements it has published since the introduction of pension freedoms in 2015.
A key area where advisers often fall foul is in understanding and balancing the needs and objectives of the client, noted Mr Corliss.
He said: “The content of the FCA documents collectively considers that clients often know how they want to spend their time in retirement but are less equipped to appreciate the level of income that is needed.”
The appropriate pension transfer analysis, which requires advisers to document how they arrived at their recommendation, should take account of the client’s specific needs and objectives in the first instance.
“Objectives should not be generic but should be personal to each client. They are likely to relate to the client’s family and intended lifestyle,” said Mr Corliss.
“In the past, pension transfer specialists haven’t been as thorough as the regulator might like in detailed income and expenditure analysis, with evidence on file to back up the figures.”
2) Asking the right questions
Another webinar explored how to turn principles into practice to aid good client outcomes and understand complex advice areas.
Martin Lines, development and events director at Just Group, said the framing of questions in order to draw out key information about the preferences of the client is essential.
Mr Lines said: “It is about using simplified language that the client will understand. It is great to talk about factors such as the client’s assets, their liabilities, capacity for loss and transfer risk, but these aren’t necessarily terms that the client will use.”
He continued: “In terms of eliciting the correct answers, advisers must also make sure that they are spending time with the client and phrasing questions openly rather than leading the client in a particular course of action.”
For example, asking, ‘Are two holidays per year important to you in retirement?’, is likely to elicit a different response to, ‘How important are two holidays per year in retirement if it means your pension fund might run out in your mid-seventies?’
“While you might be able to talk about a number of different options in retirement, it is a case of making sure that equal weight is given to each,” said Mr Lines.
3) Workplace pensions
Another webinar tackled the need to address the FCA’s concerns around defined contribution pensions and the low level of transfers to workplace pension schemes (WPS) in comparison to self-invested personal pensions.
Dr Matthew Connell, policy and public affairs director of the PFS, highlighted the importance of a detailed transfer analysis in order to ensure that clients are not being shoehorned into the adviser’s standard business model.
He said: “Finding out the client’s investment risk and looking at their past experience can build a case towards needing a much more sophisticated pension than perhaps exists for the workplace scheme, but it can equally point to simpler, more straightforward investment needs that fit in with what a workplace pension can offer.”
Dr Connell explained that the regulator wants to ensure that all types of investors have appropriate vehicles offered to them and are not exposed to unnecessary charges from an investment strategy more sophisticated than they really needed.
“In cases where a WPS is not chosen, what the FCA would like to see is a chain of logic to show that what has been recommended is a rational alternative that overcomes the issues the client has with the WPS,”
he concluded.
4) Not just the here and now
The webinar series also looked at the recent development of the Defined Benefit Advice Assessment Tool (DBAAT), which set outs key factors for advisers to consider when checking the suitability of their advice.
At the core of the tool is the expectation of a clearly documented retirement advice process (centralised retirement proposition) that assesses the client’s situation at the present stage through to the point of retirement.
Poor information gathering that does not properly consider drivers such as loss of guaranteed income
will result in material information gaps, noted Mr Corliss.
Advisers were encouraged to make use of the tools available, including budget planners, to calculate client income, expenditure and investment income.
Mr Corliss continued: “The underlying tone of the DBAAT and accompanying regulatory documents is that the primary purpose of a pension is to satisfy the retirement income needs of the client and any dependants throughout the entirety of their retirement. This is the premise upon which the quality of advice will ultimately be judged.”
To watch the full pension transfer series and to find out more about the PFS digital programme for 2021, visit: https://gateway.on24.com/wcc/eh/2726442/personal-finance-society
Bobbi Sills is communications executive at the CII
