The jury is out on whether Abridged Advice, an option in relation to defined benefit transfer advice since 1 October 2020, will be widely taken up by firms and/or clients.
Firms that do offer this option to clients should bear in mind what they can and cannot do when providing Abridged Advice.
Abridged Advice enables an adviser to:
- Provide the consumer with a personal recommendation not to transfer or convert their pension; OR
- Tell the consumer that it is unclear whether they would benefit from a pension transfer or conversion based on the information collected through the Abridged Advice process.
Note that Abridged Advice does not meet the requirement for clients to take advice before transferring – no firm can arrange a transfer unless full advice has been taken.
Boundaries of Abridged Advice …
Firms offering abridged advice are only permitted to go through the initial stages of the advice process including:
- Fact Find/Know your customer assessment;
- Assessment of risk, capacity for loss, knowledge and experience and transfer risk factors.
That is to say, sufficient information to enable advisers to consider the risks of staying in the scheme and the risks of transferring and losing the benefits.
As with full advice, the starting point for advice should be a presumption that a pension transfer or conversion will not be suitable.
However, as Abridged Advice does not take account of how funds might be invested if a transfer were to proceed, the risks associated with a specific flexible arrangement should not be considered and, in particular, firms offering abridged advice are not permitted to:
- Undertake an Appropriate Pension Transfer Analysis (APTA)
- Provide a Transfer Value Comparator (TVC)
- Consider any potential receiving scheme
Given the boundaries of Abridged Advice, there are a couple of specific questions that we have been asked.
Do you need to know the CETV?
Strictly, from a recommendation point of view, it is not absolutely necessary to know the CETV to provide Abridged Advice. We believe that it would be good practice to know the CETV, as it could well aid the adviser to reach a suitable conclusion.
However, from a practical point of view, there is a definitive reason why most firms will need to identify the CETV at the Abridged Advice stage. It is now a requirement that the suitability report for either Abridged or Full DB Transfer Advice to incorporate a one-page summary at the start. The summary must include a number of mandatory items. Specifically, it must set out the cost of advice in cash terms. Where advice is charged as a % of the CETV, the actual monetary amount (in £) that would be payable by the client must be shown in the one-page summary so firms charging on a percentage basis do need to know the CETV to be able to determine that amount.
Can you do a cash flow model when providing Abridged Advice?
When giving abridged advice, firms are able to use the DB scheme information to see how well the scheme meets the client’s needs and objectives. So, for example, there is nothing to prevent a firm from revaluing the DB Scheme benefits to NRA, applying early retirement factors etc. to see how well they scheme benefits meet the client’s needs, alongside the client’s other retirement provision.
As indicated above, firms are not prohibited from obtaining the CETV, and might have to in order to populate the one-page summary. But firms shouldn’t make projections based on the CETV or carry out any comparisons of the ceding scheme benefits with a proposed receiving scheme, including undertaking appropriate pension transfer analysis or a transfer value comparator.
The FCA considers that projecting future values of benefits based on the CETV, i.e. cash flow modelling, would go beyond the boundaries of Abridged Advice and so shouldn’t be part of the Abridged Advice process.