The FCA’s finalised guidance on defined benefit transfer advice marks the next step in its mission to drive better standards in this higher risk area.

But while DB transfers remain an area of critical importance to the regulator (the FCA wants to see suitability rates over 90%), it has also signalled a shift in focus towards the retirement advice sector more broadly.

The recent guidance should help advisers think about the compliance and suitability of all their retirement advice, with a number of areas highlighted equally applicable.

For example, the guidance drew attention to the level of Know Your Customer information needed on file to help demonstrate suitability, such as details on the client’s income requirements in retirement.

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Likewise, in retirement advice, one issue we’ve seen is the adviser’s lack of consideration of the client’s capacity for loss before recommending a product or funds. To fully understand this, advisers need to know the client’s desired income in retirement as well as their planned expenditure. So this is clearly an area that can be improved across the board.

Advice also needs to give appropriate consideration to the various options available. For example, I’ve seen DB files where a transfer has been recommended on the basis the client’s income needs can’t be met in the existing scheme. But this doesn’t automatically mean a transfer is suitable. It may be the case that, when combined with any defined contribution benefits, the client’s income needs can be easily achieved.

This is why relevant cashflow modelling is important for retirement advice of any kind. While it’s not a requirement, it can definitely help demonstrate why the recommendation is suitable. Just make sure the modelling is realistic and appropriately stress tested, taking into account unexpected circumstances that could disrupt a client’s financial plans.

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This market is continually evolving. The only constant is that firms with the strongest procedures and control environments also tend to provide much better advice.

The areas I’ve mentioned are all relatively easy for firms to improve and the finalised guidance gives loads of detail about how this can be done for DB business. But many themes of the guidance can be helpful when considering broader retirement advice processes, too, and we’d recommend all firms active in this market read it if they haven’t already.

David Boyhan is technical director at compliance consultancy TCC Group