One forecast is that a million people will transfer out of their DB scheme in the next 25 years and the number of schemes will reduce to around 1,000, a four-fold drop in the number of schemes today.
Regular sampling can help control processes and provide the proof to the FCA that good housekeeping and thoroughness underpin the firm’s approach to clients. Documenting how the advice meets the client’s future objectives is a great place to start.
The FCA’s new rules will be particular areas to re-examine. ‘Personal recommendation’ must run throughout the client advice, for example. Analysis of the transfer value must use the Transfer Value Comparator (TVC) to fully explain benefits being given up. Proper account should be taken for the provision for a spouse and dependants. In the past, too many advisers have relied on the critical yield analysis without fully considering why a transfer would meet the customer’s needs and their future objectives.
The advent of pension freedoms, combined with high transfer values has led to changes in customer behaviour, as the FCA found through its non-advised drawdown review published in March. Ensuring customers receive the right advice is therefore even more challenging in the current retirement landscape.