Tait’s Modern Pensions

MODERN

PENSIONS

Even as a non-actuary I have to admit that I am rather fond of Excel. In fact, it’s probably even more satisfying for the numerically challenged among us to be able to input data and get immediate and meaningful results. I am therefore rather pleased to have the new Defined Benefits Advice Assessment Tool (DBAAT) to play with.

What is DBAAT?

The aim of DBAAT is to assess DB transfer advice given before October 2020 but perhaps has an added benefit of highlighting regulatory expectations for any new advice being given, whether DB or not. DBAAT is split into 7 sections (including summary) which are designed to answer whether the adviser has:

• collected sufficient information to deliver the advice

• provided suitable advice on the pension transfer

• provided suitable investment advice and

• whether the client proceeded to transfer against the advice given (insistent client)

• whether they were given adequate disclosure of the costs and potential disadvantages of a transfer

• whether any unsuitable advice was the cause of client loss

How does it do it

The tool uses a combination of approaches. A large part of the assessment is based on data analysis however the assessor is also required to make a judgement on whether the data is accurate and sufficient for the purpose. For example, it’s not enough to record that the client wants to access flexible benefits, the assessor also has to confirm that there is sufficient evidence on file as to why this is in the client’s best interests.

The FCA is being clear that what the client wants to do, is not enough to justify a transfer, the advice must also consider whether it is good for them. In other words, we cannot simply act as order takers.

Good and bad points

1. The information sheet

The hugely positive thing about this section lays out in full what the FCA expect to see on a client’s file. Alongside GC20/1 this clears up some of the ambiguity that previously existed, particularly during the 3 years immediately following pension freedoms when very little guidance was forthcoming.

The downside is that there is a lot of information required and it has to be manually input into the tool. My first attempt took 3 hours to complete! If we can find a way to link the spreadsheet directly to our client data, that would be ideal, and the DBAAT could then act as a quick and simple checklist for advisers and paraplanners.

2. Pre-population

Once the data is input the system automatically greys out the sections in the following tabs which are irrelevant, and this is followed throughout the rest of the tabs.

3. Advice assessment

The tool provides automatic ratings dependent on the data input – any gaps remain highlighted in blue, making it obvious that the information is insufficient (it also explains why the regulator has started talking about Material Information Gaps - MIGs – basically these are the blue bits).

Where the information is deemed insufficient, the tool automatically rates the file as ‘not compliant - unclear’, however the assessor does have the discretion to input a different outcome if they think that there was enough information, despite the MIGs, to make a suitable recommendation.

The same override applies to the 2 advice tabs. A list of potentially unsuitable outcomes is provided and if the assessor believes any apply, this will lead to a ‘potentially unsuitable’ rating. The assessor then decides if the factor(s) outweigh the other drivers of the transfer. For example, a client might be heavily reliant on the pension income but also have a particularly pressing need for PCLS without wanting to take any income.

This discretion is very helpful as it takes into account the wider facts, however, the ‘causation section’ is less forgiving. The assessor is asked if the unsuitable advice led to the client following a particular course of action, but it doesn’t allow the assessor to state that there may have been other reasons which meant the client would have done it anyway.

Summary

Overall, this has the potential to be a very useful tool, particularly if the issue of data input can be resolved. Ultimately however the assessment still depends quite heavily on the judgement of the person using it. What they consider sufficient may not always tie in with the regulators view. I would suggest therefore that while the first section may be used by advisers as a checklist prior to the delivery of advice, any post-advice checking should be carried out by a peer or third party.

Lastly, although the tool states that it is specifically designed for DB transfer advice, it does also demonstrate the sort of information the FCA is likely to include into their next Assessing Suitability report so you can get ahead with this now.

by Fiona Tait Technical Director Intelligent Pensions