Customer needs, suitability and advice processes in life and pensions
Domain 3 - Customer needs, suitability and advice processes. The exam tests whether you can run a defensible advice process: gather facts, identify needs, assess risk and affordability, research, recommend, disclose and review.
The advice process
A fact-find records objectives, family, income, assets, liabilities, health, existing pensions and protection, tax status and attitude to risk. Advisers must obtain a risk profile (attitude) and separately assess capacity for loss (ability to absorb falls), affordability and vulnerability. Research must cover the whole market for independent advisers, or a clearly disclosed restricted panel. The recommendation is documented in a suitability report explaining why the product is suitable, alternatives considered, charges and risks. Clients receive a product summary and costs disclosure before commitment.
Suitability in protection and retirement
Protection needs analysis considers sum assured, term, indexation, waiver of premium, trusts and existing cover. Retirement advice compares annuity (guaranteed income, open market option, enhanced rates) with flexi-access drawdown (flexibility, investment risk, fund depletion) and UFPLS. Retirement risk warnings must be given before accessing benefits.
Defined benefit transfers
Transfers of safeguarded benefits above £30,000 require advice from a pension transfer specialist, including an appropriate pension transfer analysis with a transfer value comparator, and consideration of the critical yield. Contingent charging is banned. Clients may proceed against advice only through the insistent-client process, which does not remove the adviser's liability for unsuitable advice. Abridged advice can be offered first where a full transfer is unlikely to be suitable.
Worked example
A 58-year-old with a CETV of £420,000 wants to access funds flexibly. The transfer exceeds £30,000, so specialist advice and an APTA are mandatory. The adviser compares the CETV with the capitalised value of the scheme pension (indexation, spouse's pension, early-retirement factors), the critical yield needed to match it, and the client's capacity for loss. If the client cannot accept investment risk to fund a similar income, the recommendation should be to remain.
Traps
Risk-tolerance scores are not capacity for loss; 'insistent client' does not mean no advice; the £30,000 threshold applies to safeguarded benefits; record reasons why alternatives were rejected.