The Financial Conduct Authority (FCA) wrote to over three quarters of the IFA firms active in the defined benefit (DB) pension transfer market about the quality of their advice last year. A freedom of information (FOI) request from consulting firm, Buck, revealed that the regulator wrote to multiple advisers about ‘potential harm’ in their advice.
The regulator undertook a survey of IFA firms active in the DB transfer market in June 2019 which it said showed that much of the advice on offer was ‘not of an acceptable standard’. The investigation revealed that 69% of DB scheme members who went to IFAs for advice were recommended to transfer out of their schemes. The FCA said it was concerned that advisers were recommending that too many clients went ahead with transfers.
Now Buck’s FOI request reveals that the regulator wrote to 1,841 of the 2,426 advisory firms providing DB transfers to set out the actions the firms should take.
Mark van den Berghen, Principal and Senior Consulting Actuary at Buck, said: “This latest information from the FCA is alarming and should worry all involved – providers, advisers, and scheme members. If the FCA fears that the majority of firms advising on DB transfers are giving potentially harmful advice, there are some serious questions to be asked of the industry.”
James Burgoyne, Director – Claims & Technical, Brunel Professions warns that professional indemnity (PI) insurers are already wary about insuring IFAs offering DB pension transfer advice. “This information will not help the PI market. Any firm active in DB transfers which is concerned about its PI can contact us for information about the cover available,” he said. “The data that a significantly higher number of clients are being advised to transfer by firms with only one pension transfer member of staff is thought provoking. PI professionals will immediately be reminded of other experiences of one senior member of staff working in relative isolation and with incomplete supervision, and subsequently producing a volume of claims. The actions of one individual in these scenarios can have a disproportionately toxic effect on the claims experience of the firm, and even threaten the ongoing viability of the firm. Principals will want to ensure that they are aware of the advice being given and be satisfied that it is suitable, to avoid repeats of such past experiences here.”
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.