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When pension transfer triage becomes regulated advice

ATEB Consulting MD Steve Bailey looks at the practice of transfer triage and where it could cross into regulated advice 

The concept of triage comes out of the need for finite military medical resource to be used efficiently in the heat of battle – it seeks to ration the priority of patients’ treatments based on the severity of their condition where there is insufficient resource for all to be treated immediately.

The term comes from the French verb ‘trier’, meaning to separate, sift or select and is believed to have originated during the Napoleonic Wars but has been applied by military doctors in all conflicts since and is also used in any Accident and Emergency Hospital for the same reasons, essentially to identify:

• those who are likely to live, regardless of what care they receive;

• those who are unlikely to live, regardless of what care they receive;

• those for whom immediate care might make a positive difference in outcome.

Transfer triage – when is it regulated advice?

In CP18/7 ‘Improving the quality of pension transfer advice’, published in March 2018, the FCA acknowledged that many firms giving advice on defined benefit transfers operate a triage process in their initial conversation with potential clients. In this context, the purpose of triage should be to give the client sufficient information about safeguarded and flexible benefits to enable the client to make a decision about whether to take advice on the transfer or conversion of the safeguarded benefits.

However, the FCA has found that some forms of triage may be inadvertently crossing the advice boundary. For example, if an adviser tells a client that they should not be transferring their DB benefits at the end of the triage service, this is likely to be regulated advice. Similarly, if an adviser tells a client that it is unlikely that a transfer would be recommended if the client took regulated advice, this in itself may be an implicit recommendation to stay in the ceding scheme.

The FCA have indicated that, for triage to be a non-advised service, it should be an educational process so that clients can decide whether to proceed to regulated advice. Firms can achieve this by providing generic, balanced information on the advantages and disadvantages of pension transfers.

Ideally, if the firm wishes to avoid giving advice, no information should be gathered about the client. However, even if a client tells a firm about their personal circumstances, the firm should not comment at the triage stage on whether the client should consider a transfer based on this information, If an adviser gives an opinion on how a consumer’s individual circumstances may affect advice on transferring, it is more likely that regulated advice is being provided.

The FCA also recommends that firms should:

• explain the transfer process and the total charges that might be incurred, both if a transfer proceeds and if it does not;

• keep records where triage has been provided and the form that it took as this is likely to be in firms’ interests in case of future complaints.

Practical view

Firms that operate a triage process are usually trying to avoid engaging with clients in a process that will be time consuming and potentially costly for both parties, where it is likely the client would be advised not to transfer. This is a laudable motivation but fails if the process strays into the realms of regulated advice, as it so easily can.

It is essential to realise that, for the triage process to avoid crossing the advice boundary, it should be entirely generic and intended to educate the client sufficiently that the CLIENT can make an informed decision as to whether to proceed to taking advice on the transfer or conversion of the safeguarded benefits.

It should not incorporate any consideration of the client’s particular personal circumstances, any indication that the client should or should not transfer or inform any decision by the FIRM to engage further or not with the client.

That is not to say that firms cannot have a filtering process to ensure that they do not waste time and resource on clients that they do not wish to engage with. Such a filtering process is entirely possible but should be based solely on automatic mechanistic grounds such as the size of the transfer value or client age, e.g. “we do not advise on transfers below £X” or “we do not advise on transfers where the client is more than X years from taking benefits”.

3 points to consider

1. If you operate a filtering process with clients seeking transfer advice, review it against the FCA guidance to avoid inadvertently giving regulated advice with all that entails.

2. In particular, ensure that the process is intended to enable the client to decide whether to take advice or not.

3. Any filter process that is intended to enable the firm to decide which clients to engage with should be automatic and mechanistic.

This is a high risk area of business and is probably top of the FCA’s concern list currently.

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