Reasons behind growth in delegating advice

Usually, the regulated adviser fronts the advice to the client, but on occasion some aspects of the advice are undertaken by unregulated third parties, where for example the third party has software or processes in place to do the work.

One particular area where firms are said to be delegating regulated advice is in relation to pensions transfers.

According to Rachael Healey, senior associate for City law firm RPC, when advising on this issue, the final advice must include a pension transfer analysis under the Conduct of Business Sourcebook (COBS) 19.1.

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She says: “The software for conducting this analysis is not readily available and this part of the advice is sometimes delegated to a third party who can provide the analysis.

“It appears there has been an increase in regulated adviser firms delegating certain parts of the advice chain to third parties since the introduction of the pension freedoms.”

Although such statistics are not readily available, so the relationship between pension freedoms and an increase in delegated advice is anecdotal, Ms Healey suggests: “The reason for this may be that regulated activities with regard to pensions advice are more open to delegation than in other areas.”

From our experience, there has been a rise in the amount of pension transfer cases placed Liz Coyle

The “crunch on adviser firms” since the pension freedoms - caused in part by a lack of advisers in the market and by a sharp increase in the number of clients seeking transfer advice post 6 April 2015 - could also mean advisers feel they have to delegate part of this advice as this is the “only way to meet client demand”, Ms Healey adds.

Some adviser firms and support services have also seen an increase in the number of advisers pushing clients to third parties post-pension freedoms.

Liz Coyle, compliance policy manager at SimplyBiz Group, says: “From our experience, there has been a rise in the amount of pension transfer cases placed, necessitating an increased need for outsourcing”.

The Personal Finance Society also points to a correlation between the pension freedoms and the increase in outsourcing.

Tony Miles, business development consultant for the PFS, says: “It is logical to assume that, given increased access to the pension fund cash and greater complexities offered by pension freedoms, the probability of outsourcing certain business lines has increased.”

However, not everyone believes the sharp increase in delegated advice over the last year has been a direct, if unintended, consequence of the changes to the pension environment.

Where the regulator has recently flagged cases of improper delegation, this has been around investment choices within a self-invested personal pension.

A spokesman for the Financial Conduct Authority says: “In the examples we have seen, retail consumers had been recommended to switch their mainstream personal pensions into Sipps with underlying high-risk assets that may have been unsuitable for the customer.

“As a result, there does not appear to be a link with the pension freedoms being introduced.”