Defined Benefit Transfers: Standards of Advice

ATEB regularly undertakes file checks on defined benefit transfers. We frequently reject cases, primarily as the suitability of the transfer is unclear or unsafe. Recent figures released by the FCA indicate that our findings are probably a reflection of what is happening in the wider market.

The FCA has disclosed that, since October 2015, it has reviewed 88 cases where the advice was to transfer. The results were:

  • 47% were suitable;
  • 17% were unsuitable;
  • 36% were unclear.

i.e. less than half were deemed suitable!

The shortcomings included:

  • failing to obtain enough information about clients’ needs and personal circumstances;
  • failing to consider the needs of the client alongside the client’s objectives when making a recommendation;
  • not making an adequate assessment of the risk that clients are willing and able to take in relation to pension benefits.

The FCA also highlighted that some advisers had failed to make appropriate comparisons between DB schemes and the intended receiving scheme, meaning advice was based on inaccurate information.

The findings show that many firms were working to processes and procedures which resulted in transfers where the suitability of advice simply could not be established by the firm.

But it wasn’t just the rationale for recommending a transfer that was found to be wanting. In relation to the suitability of the recommended product and fund, the FCA found that –

  • 35% were suitable
  • 24% were unsuitable
  • 40% were unclear

The detail behind these findings was not published but, based on our own findings and previous FCA alerts, we suspect that a mismatch with the client’s risk profile is likely to have been involved in many of these cases.

Serious concerns were also raised about specialist transfer firms receiving introductions from firms that do not have transfer permissions. Concerns included:

  • inadequate information sharing between firms, with the specialist not knowing clients’ needs;
  • the specialist not making a recommendation for a receiving scheme or investments, hence no meaningful comparison could take place;
  • increased transfer business volumes but no commensurate increase in compliance resource.


Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Our transfer file check findings are often to the displeasure of the adviser concerned. However, our results are broadly in line with the FCA’s.

Notwithstanding those advisers who present good cases based on sound rationale, this is a clear indication that standards need to improve further and that many transfers should not take place.

As a result of these findings, the FCA said it will be undertaking a further phase of supervisory assessments within the current business year.

Action Required By You

Please don’t shout at the messenger.

It is of critical importance that firms who undertake defined benefit transfer business have a fully controlled and supervised process.

Look at the processes and procedures you follow around transfer advice. Do they fully reflect the requirements as published in COBS 19 and various FCA alerts?

There will definitely be complaints arising in the not too distant future so unless you ensure 100% suitability now, your business (and livelihood) is at risk.

Contact your usual ATEB consultant if you would like to discuss this further, or click here.

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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