The Financial Conduct Authority (FCA) has published a defined benefit (DB) transfer tool which it said should help firms understand its file review methodology for DB transfer advice. But what exactly is it and why should advisers care?
What is DBAAT?
The Defined Benefit Advice Assessment Tool (DBAAT) sets out key factors advisers should consider when checking the suitability of advice and disclosure. Essentially, it should help firms to understand what is expected of them and they can also use it to assess DB advice given before 1 October 2020 – before contingent charging was banned.
It is also the method the FCA uses to assess the suitability of DB transfer advice, which offers advisers an insight into how the regulator reviews cases in this market.
The regulator has provided a number of explainer videos alongside the tool, one of which includes tips on how to use the tool and highlighted three questions advisers should ask to assess the suitability of their advice:
1) Has the firm obtained the necessary information to advise the consumer?
2) Has the firm given suitable pension transfer advice?
3) Where relevant, has the firm given suitable investment advice on the proposed investment?
The tool, which was used by the FCA in its latest phase of assessing the suitability of DB transfer advice, contains a number of tabs on assessing suitability for a pension transfer, suitability for investment advice and an insistent client process.
Advisers can input data to then analyse whether a transfer might be appropriate. In the first tab, users are reminded to gather all relevant information from a client, including their employment health and vulnerability.
The second tab helps users to assess suitability for a pension transfer and are shown examples of unsuitability to consider for their client. These include if the client is, or will be, reliant on income from this scheme, whether the client has the necessary attitude to risk and if they want guaranteed income or returns.
The third tab, titled ‘Suitability – Pension transfer’, also helps advisers determine whether the advice is suitable for their client. They are asked to suggest suitability ratings based on examples, to provide information on the assessor’s suitability rating and the assessor’s rationale and evidence for suitability rating.
Past advice and updated tool
The FCA also provided guidance for dealing with insistent clients and are asked to consider if they have provided the right information to said client, if they’ve obtained an acknowledgement that the client is acting against advice and if they have made a record of this process.
The regulator suggested advisers use the tool to assess past advice, for example, if they receive any complaints about the DB transfer advice they gave or as part of carrying out a past business review.
The financial watchdog said firms can assess the suitability of DB transfer advice they gave before October 2020. The DBAAT does not incorporate the new rules that came into force on 1 October 2020.
The FCA also confirmed that an updated tool, which incorporates rule changes that came into force from 1 October last year, will be published in the coming months.