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DB Transfers and the importance of managing customers' expectations

By Simon Thomas | 04 September 2017

SUMMARY: Tenet's Head of Policy, Simon Thomas, looks at what can advisers do to mitigate risk and manage customer expectations in the DB Transfer arena

The pensions landscape is in a constant state of change and it has been in the news again, with the FCA consultation paper (CP17/16) on Advice on Pension Transfers.

Much of what is being said makes a great deal of sense to Tenet and is in keeping with a lot of the practices we already embrace and recommend today.

However, one thing that is not changing is the three month window of opportunity customers and advisers have to complete the DB transfer, in order for the pension provider's guaranteed Cash Equivalent Transfer Value (CETV) to be honoured.

While there have been calls in some quarters for the guarantee period to be extended to six months, the actuarial community has not unreasonably pushed back, arguing that six months creates too much of a liability exposure, especially in volatile and uncertain market conditions.

So what can advisers do to mitigate risk and manage customer expectations?

Although it is no doubt an over simplification, from our experience, customers tend to fall into one of two camps. Those that are seeking advice prior to obtaining a CETV and those that seek advice having obtained a CETV - with many customers having more than one DB pension to consider.

If as their adviser you have an ongoing relationship with a customer and through that relationship you are aware of their retirement aspirations, then you are in a much better position to control the process and manage the customers’ expectations in terms of likely timeframes.

As the three month window of opportunity only starts once the CETV has been obtained, one key measure you can take is to not request the CETV until after you have gathered much of the usual fact-find information.

Since pensions freedoms were introduced in 2015, interest in DB transfers has skyrocketed through a combination of historically high transfer values, herd mentality (my mate down the pub did it) and an irrational desire for customers to get their hands on the cash so they can invest it, sometimes in a bank account because this is then more "real" to them!

So unfortunately, in many instances, the customer obtains a CETV from their pension provider and leaves it on the side table for a few days or even weeks before locating an adviser who is willing and able to provide advice in this area whilst the clock is ticking down to zero. So what can be done?

First and foremost, it is critical to manage a customer's expectations, as failure to do this at the outset is the single highest cause of most complaints.

You should make sure that your customer understands the service(s) that you will provide, the cost of the service(s), the detailed steps and information you will need to gather and why, before you can provide a personal recommendation. You should also make it clear that at the end of the process you may not recommend the transfer. If you will not execute transfer business on an insistent basis and you have established at outset that they would go against your advice, you may decide it would be better for both you and the client not to work together.

Importantly, you should make it very clear that there is no guarantee that the transfer can be transacted within the remaining timeframe and the consequences of time running out. For example, the transfer could still take place but at a different lower value and/or the need to pay for another CETV, presuming of course that the provider is willing to supply one.

The most obvious and common reasons for delay are associated with the time it takes for trustees to respond to any additional information requests, but these are not the only potential sources of delay that you should factor into your thinking.

Many firms outsource advice on DB transfers and a DB transfer with a CETV of over £30,000 must be signed off by a pension transfer specialist. With demand skyrocketing, these resources are in short supply so you should check capacity before committing in either area. Additionally, if you have an insistent client that you are willing to work with then you will effectively need to go through the suitability process twice (see the FCA's Factsheet 35).

At some point in the future we may see some standardisation of information that providers and trustees have to provide to customers and their advisers. This would undoubtedly streamline the existing transfer process but in the meantime, the key message is to manage customers' expectations and where possible get ahead of the game through understanding your customers' retirement aspirations.

Finally, for those advisers considering CII's new AF7 Pension Transfer qualification, make sure you are aware of the proposals in the consultation, which is due to close for responses on 21 September.

By Simon Thomas, Head of Policy