Nearly 700 financial advice firms have given up their permissions to advise on defined benefit (DB) pension transfers since the Financial Conduct Authority’s (FCA) contingent charging ban was introduced.
The figures, revealed by FT Adviser, show the total number of firms that gave up their permissions between from 5th June 2020 to 31st July 2021 was 687. The FCA banned advice firms from offering DB transfer advice on a contingent basis in June 2020, where fees were only payable if a transfer went ahead. The move followed a series of pension transfer scandals.
At the time the regulator said that contingent charging created a clear conflict of interest, as the adviser was only paid if a transfer went ahead.
Pension consultant Lane Clark and Peacock’s research shows that the number of DB transfers dropped to their lowest level in the final quarter of 2020 since it had begun tracking the numbers in 2016, according to a report in New Model Adviser. Just 17 out of 10,000 pension scheme members requested a transfer quote in the final quarter of 2020. The decline was due to lockdowns and the charging ban the report says.
James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said: “The FCA’s actions are important in improving the quality of DB transfer advice, however the overall contraction of the market is a significant concern. There are instances where a transfer will be in a scheme member’s best interest and these people need top quality advice from professional advisers if they are to make the right decision for their circumstances. Fewer advisers active in the market could lead to some DB pension scheme members missing out.”
“There have also been well-reported challenges for IFAs offering DB transfer advice in securing professional indemnity insurance. The insurers are aware of the FCA’s continued scrutiny of this area and remember the costs they sustained due to the Pension Transfer Review in the late 1990’s,” he added.
Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.