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.
Demand has also been driven by record transfer values, which have been soaring in the 10 months since the EU referendum thanks to plummeting gilt yields.
According to Xafinity's most recent figures, average transfer values now stand at around £241,000 for a pension worth £10,000 a year at age 65.
That's £30,000 more than the same pension was worth on 1 June 2016, before the UK voted to leave the European Union.
Transfer values have been hovering around that level now since January, after peaking at almost £245,000 in October.
Figures from The Pensions Regulator found that up to 80,000 defined benefit pension transfers were made in the year ending 31 March.
Those with a cash equivalent transfer value of £30,000 or more must seek financial advice before going ahead with the transfer.
Richard Ross, a chartered financial planner with Norwich-based Chadwicks, said his firm had pension transfer permissions along with two qualified advisers but it had not had any requests for its files from the FCA.
He said: “We regard this as high risk business and have a number of safeguards in place to try to militate against potentially poor client outcomes.
“Although we do not actively seek this business we have seen an increase over the last 12 months but to still modest numbers of cases.”
He said the firm started with the presumption it would not be in a client’s interest to transfer, with only half the requests resulting in a transfer, and his firm charges an initial review fee plus a 1 per cent fee if the transaction goes ahead.
The FCA declined to comment on how it is looking into defined benefit pension transfers.
damian.fantato@ft.com
