The defined benefit transfer advice market is showing signs of improvement, but more needs to be done to stop the flow of firms giving up their permissions, the industry has warned.
There is concern that members will find it increasingly difficult to source DB advice in the future if the number of firms offering a wide range of services continues to fall.
Financial Conduct Authority figures out today (January 18) showed the number of firms operating in the pension transfer market has fallen as insurance costs and regulatory changes have taken their toll.
The number of active firms has fallen by almost half, from 2,426 firms in 2015/18 to 1,310 firms in 2018/20.
Steve Webb, partner at LCP said: “The DB transfer market remains a source of real concern. The supply of advisers has fallen dramatically in recent years, and recent regulatory changes plus the cost of obtaining insurance is likely to reinforce this trend.
“Members are likely to find it increasingly difficult to source high quality impartial advice if left to their own devices.”
Tim Fassam, director of government relations & policy at adviser trade body Pimfa, said the numbers were concerning.
Mr Fassam said: “While we are confident that the quality of DB transfer advice has improved substantially over recent years, the industry continues to be hampered by previous failings.
"Nowhere is this more evident than in the Professional Indemnity Insurance (PII) market where firms, which wish to be active in the DB transfer market, continue to struggle to obtain affordable PII insurance.
“Unless this market can begin to function properly for advisers again, we fear that the number of firms offering a wide range of services will continue to fall."
Alistair Cunningham, financial planning director at Wingate Financial Planning, also blamed PI problems for the exodus of advisers.
He said: “We do not know for sure if the amount of firms leaving the market is due to the FCA tightening the screws, but my suspicion is that the lack of professional indemnity is the driving force.
“Advisers in this market are having harsh terms applied to them through insurers and it is causing them to move out.
“The drop in firms is a combination of recent FCA measures and lack of PI which in turn is driving the market to contract.”
Worse to come?
There are concerns that more advisers will relinquish their permissions following the contingent charging ban which came in force from October 2020.
Contingent charging means a client only pays for the advice if they go ahead with a transfer. The FCA said by introducing this ban it will remove the conflicts of interest which arise when a financial adviser only gets paid if a transfer goes ahead.
But Tom Selby, senior analyst at AJ Bell, warned if the market continues to shrink people who can afford and need advice will find it difficult to gain access, which could be detrimental to their finances.