The Financial Conduct Authority is currently carrying out a desk-based study into advice firms doing a “significant” amount of defined benefit transfer business.
Among the concerns the regulator is believed to have is the conflicts of interest involved in the process.
The work is understood to not be a formal review or study but is a piece of supervisory work in which the FCA is looking at advice firms which have increased the number of DB transfers they have been doing.
This work could be one of the reasons why a number of advice firms have found themselves having to stop carrying out pension transfers.
There are currently 54 advice firms voluntarily restricted from carrying out pension transfers, according to FCA data.
Rory Percival, a consultant and former technical specialist at the FCA, said these agreements were among the regulator’s “most powerful tools” because it could potentially put a firm out of business by cutting off its income stream.
He said: “It will only use it if it has significant concerns. It doesn’t take these decisions lightly.
“My understanding is they are looking at a large number of advisory firms who are doing significant pension transfer business.
“There are a lot of conflicts of interest involved here and there are advice firms which have not managed them adequately.”
Andy Sutherland, managing directory of advisory services at TCC, formerly known as The Consulting Consortium, said the FCA is collating and analysing data on DB transfer activity from information collected via firms' regulatory returns.
He said: "Of specific interest will be firms that have seen a significant uplift in the level of DB transfers. It is more concerned about those firms with exponentially increasing DB transfers from a low or zero base as opposed to those who specialised pre-pension freedom and are doing more of the same now.
"The FCA also appears to be focusing on advice firms that supply recommendations for other IFA firms. For example, advisers that write the transfer business in the scenarios where the transfer ‘advice’ has been separated from the advice on the receiving plan and funds.
"The FCA will be gathering data on the end adviser firms and will at some point seek to understand the eventual transaction undertaken by the client."
There has been surge of interest in defined benefit to defined contribution transfers as people look to take advantage of the flexibility and inheritance tax advantages of DC in the post-pension freedoms world.
In the first quarter of 2017, Scottish Widows saw the number of requests for its transfer value analysis report (TVAS) service increase by 170 per cent on the previous year's figures while Prudential has seen an eightfold increase in demand for its TVAS report service over the last two years.
