DBAAT Suitability Myth #2
When a consumer wants to leave legacy death benefits in the form of pension benefits by converting from defined benefit for the purpose of creating inheritable pension benefits for inter-generational named beneficiaries, is it possible to give suitable advice to transfer?
Yes.
Who says so??
The FCA.
There is a myth that when assessing advice using the FCA DBAAT, the pension transfer advice will be unsuitable, where the consumer has an objective to leave inheritable legacy pension benefits.
Not true: Myth #2
You might be doing DBAAT reviews in the context of PS22/14 (BSPS redress scheme). Don’t be driven by mythology. Assess the evidence and apply the guidance.
Look at the facts, as directly translated from FCA guidance:
If there is a reasonable basis for believing that:??
(a) the recommendation to transfer in order to pass the value of the pension to beneficiaries on the member’s death meets the consumer’s investment objectives; and ?
(b) the consumer is able financially to bear any transfer-related risks consistent with their investment objectives.?
And the available evidence(contemporaneous evidence on file at date of advice) demonstrates:
(1) the consumer did have the requisite capacity for loss and were able to forego scheme benefits (proven by rigorous modelling and assessment of potential risks and losses);
and??
(2) the investment risk was suitable, consistent and appropriate for the consumer (appetite, attitude and capacity);??
and?
(3) it was likely that the consumer would not exhaust their pension/retirement savings during their lifetime, having regard to how the consumer will access their pension savings, demonstrating that it was reasonable to judge that there will be death benefits available;?
and?
(4) the firm has obtained all the necessary information to complete a full risk assessment and the firm has a reasonable basis for believing that the consumer is able to bear the risk of the pension transfer to achieve this objective;?
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If the answer is ‘yes’ to all the questions, conclude that the consumer is very likely to have a reasonable chance of leaving legacy pension benefits for named beneficiaries.
The advice is suitable (in this aspect), as assessed by the DBAAT.
In other words - have you done extensive, deep and wide cashflow modelling of the consumers plans (single or joint) in retirement and stress-tested them to model whether there is a reasonable likelihood of legacy pension benefits remaining?
Do you have the clients informed consent in accepting your advice?
Do they understand the risks and assumptions used in the modelling of their future?
Myth #2
It is mythology to suggest that good retirement planning is going to automatically fail the DBAAT assessment automatically.
All we’ve been talking about recently is the benefits of pensions for the purposes of family wealth inheritance protection: why can’t that apply to clients with DB pensions??
If you have collected sufficient evidence to do a deep and detailed, stress-tested cash flow analysis of a client's retirement plans and applied rigorous stress testing (across a number of factors) on the advised proposal, it is likely that you will have had this (part of the DBAAT assessment) assessed as suitable.
Evidence-based assessments - not mythology.