Pension transfers – Triage and assessing Transfer Risk

In April and October 2018, the FCA introduced new rules and guidance for firms providing advice on pension transfers. In this article we look in detail at two of the new concepts that have been addressed by the FCA, namely ‘Triage’ and ‘Transfer Risk’. You can read ATEB’s previous article on Triage here.

In CP18/7 ‘Improving the quality of pension transfer advice’, published in March 2018, the FCA reported that many firms giving advice on defined benefit transfers had been operating what the FCA referred to as a ‘triage’ process in their initial conversation with potential clients. The purpose of this process was entirely understandable, namely for the firm to avoid potentially costly time and risk from progressing an advice process with clients to whom they would be unlikely to recommend a transfer. This would be especially desirable for firms operating on a contingent charging model, as most firms still do.

However, the FCA found that some forms of ‘triage’ were inadvertently crossing the advice boundary. If a firm decided to cease further engagement with a client on the basis that, having considered the client’s situation, the firm believed that a transfer was unlikely to be recommended then, by definition, it is almost certain that the firm strayed into the realms of regulated advice. And that has implications.

Two rules are relevant.

COBS 19.1.1C – “A firm must make a personal recommendation when it provides advice on conversion or transfer of pension benefits.”

COBS 9.4.2A – “If a firm makes a personal recommendation in relation to a pension transfer or pension conversion, it must provide the client with a suitability report.”

In summary? Transfer advice must result in a recommendation to transfer or not to transfer and that recommendation must be confirmed in a formal suitability report – and follow all the rules in COBS 19 and COBS 9. So, it is important not to stray into advice unless you mean to complete the course!

How do you manage this process?
ATEB has developed a process that eliminates the use of the word ‘Triage’ because we do not believe that it accurately reflects or describes the requirements. This is the process that we suggest:

Step 1: Mechanical Filters
There might be some clients you do not wish to advise, so why not adopt a mechanical filtering process before engaging with the client? For example:

  • We do not provide transfer advice for transfer values less than £X.
    This could be justified based on a judgement of the value of advice in relation to the fee that would be charged or because of the minimum investment required for the firm’s investment solutions.
  • We do not provide transfer advice for clients below age 50.
    This might arise from a consideration of the “Why transfer now?” question or because many PI providers now explicitly exclude coverage for transfer advice to younger clients.

Any client filtering that the firm wants to do must be based on pre-defined, purely mechanistic criteria that the client either meets or does not meet. There are not many criteria that are likely to satisfy the ‘no advice given’ requirement. The two above are the most obvious criteria.

Step 2: Pre-Advice Information
The only way to avoid straying into advice is to ensure that the client only receives generic information and education about pensions prior to any formal engagement in an advice process. The aim is to provide the client with sufficient information about safeguarded and flexible benefits to enable the client to make a decision on whether to proceed to the formal advice process.

ATEB has developed a Pre-Advice Information process that meets the FCA’s guidance in this respect.


Transfer Risk
The FCA has also introduced the concept of Transfer Risk and now requires firms providing advice to a client on the possible transfer of safeguarded benefits to assess the client’s attitude to Transfer Risk. Please note that this is quite distinct and separate to assessing the client’s attitude to Investment Risk.

COBS 19.1.6 includes some guidance on what is meant by Transfer Risk and the factors involved. These include:

  • the risks and benefits of staying in the ceding arrangement;
  • the risks and benefits of transferring into an arrangement with flexible benefits;
  • the retail client’s attitude to certainty of income in retirement;
  • whether the retail client would be likely to access funds in an arrangement with flexible benefits in an unplanned way;
  • the likely impact of that unplanned access on the sustainability of the funds over time;
  • the retail client’s attitude to and experience of managing investments or paying for advice on investments so long as the funds last; and
  • the retail client’s attitude to any restrictions on their ability to access funds in the ceding arrangement.

ATEB has developed a tool that firms can use to assess Transfer Risk.

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

Firms that seek to identify clients that they do not wish to engage with need to be careful not to stray inadvertently into giving advice. The only way to do that is on the basis of pre-defined, mechanistic criteria.

It is also helpful to give the client the opportunity to disengage before committing to take transfer advice – with the possible associated costs. This can be achieved by providing factual, generic educational information on pensions to the client to assist the client in deciding whether to proceed to the full advice process.

Firms also need to have a process by which they assess and document the client’s attitude to Transfer Risk. This is entirely different from investment risk, so an ATR tool is unlikely to be able to do the transfer risk job.

Action Required By You

  • If you wish to filter out certain clients up front, pre-define mechanistic criteria;
  • Review any filtering process you operate to ensure it remains generic and educational and gives sufficient information on which the client can make an informed decision to proceed or not to the formal advice process;
  • Consider how you will assess and document the client’s attitude to Transfer Risk;
  • Speak to your usual ATEB Consultant for further assistance or to express an interest in the Pre-Advice Information and Transfer Risk tools that we have developed; OR
  • Contact ATEB directly here.

You can find out more about ATEB’s expertise in the area of transfer advice 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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