Pension transfer advisers warned to be 'whiter than white'

Pension transfer advisers warned to be 'whiter than white'

Advisers operating in the defined benefit transfer market need to be "whiter than white", Rory Percival has warned.

He said this was an area his former employer, the Financial Conduct Authority, has been looking at recently.

Last week FTAdviser revealed the FCA is carrying out a study into advice on DB transfers.

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Speaking today (19 June) at a conference on this issue, Mr Percival estimated that the regulator is currently looking at between 50 to 100 firms.

A major adviser on defined benefit pension transfers, Intelligent Pensions, stopped carrying out the business earlier this month, after discussions with the regulator.

Mr Percival said two areas advisers need to be particularly careful is around bias and the fact find process.

Mr Percival said: "There is economic evidence which says that when an agent is considering a subjective matter such as suitability then that person is likely to subconsciously big up the points that work in favour of themselves and belittle the points that work against themselves.

"This is something that happens subconsciously so it makes it difficult to manage that bias.

"When it comes to contingent charging, this is clearly one of the areas where I think firms should be thinking about the way they operate."

Mr Percival said firms should think very seriously about moving away from contingent charging completely, but start by doing so in DB transfers.

He also said advisers need to think about the fact find process, particularly around a client's objectives.

During his time as technical specialist at the FCA, Mr Percival said he came across some fact finds which included short lists of closed questions asking what the client wanted to achieve.

He said advisers needed to be careful not to influence their clients' objective.

Mr Percival added: "You need to make sure your file checkers are checking the file to ensure the suitability of advice on an outcomes basis.

"A lot of file checks are being done on a process basis."

There has been a large increase in demand for DB transfers driven by 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.

Research by Royal London suggested the typical cash sum offered is between 25 and 30 times the value of the annual pension given up.  

However, one in four advisers reported that most of the transfers that they deal with are worth 30 to 40 times the annual pension foregone.

Soaring transfer values have lead to an surge in pension transfers.

Figures from The Pensions Regulator found that up to 80,000 defined benefit pension transfers were made in the year ending 31 March.