PI insurers have introduced a blanket exclusion in new policies referring to steelworkers defined benefit (DB) transfers, which means that firms which have advised these members won’t be able to get their policy renewed.
Julian Brincat, head of IFA practice at PI broker Protean Risk, told FTAdviser this is the current practice due to “all the negative press and because there is a very negative spotlight on these transfers”.
He explained that the only way to work around this exclusion is if the adviser hires a DB specialist auditor to review the firm’s files and do a very in-depth audit on this advice.
He said: “Providing that is suitable - everything has to be perfect - then there is maybe some potential for getting them covered by insurers.
“But usually this process happens close to renewal, so it is very difficult to get that done and to get the result prior to an insurer deciding if they want to cover it or not.”
Jamie Newell, managing director at broker o3 insurance, also confirmed that this is the current process for these advisers.
He said: “They need to analyse all the transfer they made for British Steel [members], review their processes, and make sure that it was all compliant from a regulatory point of view, but also from a commercial risk point of view.
“There is a possibility of lifting the exclusion, on a case by case basis.”
Around 130,000 members of British Steel Pension Scheme (BSPS) had to choose to move their DB pension pots to a new plan being created, BSPS II, or stay in the current fund, which would be moved to the Pension Protection Fund (PPF), by December.
Of the total members, 43,000 were deferred, which meant they could transfer out but had to seek advice in order to do so.
FTAdviser reported in November that several steelworkers appeared to be transferring out their pensions after being attracted to cheap deals by Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth.
Active Wealth entered liquidation in February after the firm was told to cease any pension transfer activity by the FCA months earlier.
Ten firms suspended their pension transfer permissions following intervention from the Financial Conduct Authority (FCA) over BSPS.
Mr Brincat said that he has a mix of customers and prospective clients that have been involved with British Steel.
“The ones that had their policy renewal in the first quarter of the year were able to get cover and some of them were subject to an audit and got an increase level of coverage.
“A lot more firms are getting in touch early on in their policy period - which is something we always promoted - and asking for advice and discussing the state of the market.”
An IFA who did not want to be name and who only advised one British Steel member to transfer out told FTAdviser that he renewed his PI policy in May.
He said: “There were a few more questions regarding DB advice, but not as many as I was expecting.
“If firms have done only one or two cases, then I’m sure if they hunt around then they will find PI cover like I did.
“Those firms who got ‘stuck in’ and did dozens of cases should really have seen this one coming, even if they gave and documented the right advice.
“If we see a tidal wave of complaints regarding BSPS transfer advice (which I see as inevitable), then anyone involved in this is going to have fun getting PI insurance for many years to come, just as those who advised on traded life policies, tax dodging schemes, Arch Cru and all the other non-standard investments that some firms got involved in.”
Another IFA who had several steelworkers as clients, has recently completed a detailed questionnaire for its PI firm which “feels much like an audit”.
“We’ve yet to lodge it as our renewal is still a little while away.”
The adviser feels, however, that “there is a significant risk to the profession, where firms gave appropriate advice to members of a scheme, simply due to the actions of others who didn’t (and the PI insurers are worrying as a result)”.
He said: “Ultimately, at present, the impact of any potential advice would appear still to be uncertain.
“I also feel that there is now no separation between the advice to transfer out of the BSPS and the advice as to the destination of the funds - this is all now lumped into a ‘BSPS issue’ whereas they are both completely different potential issues.”
The regulator has been focusing on the DB transfer advice market, and announced that it will be collecting data from all financial advice firms which hold pension transfer permissions during this year.
In January, the watchdog sent a letter to all firms holding pension transfer permissions revealing the red flags the regulator will be looking for when it enters advisers' offices.
A FCA spokesperson told FTAdviser, "advising on a transfer from a defined benefit pension scheme is a very complex process and firms must have protection in place for their customers in case they receive unsuitable advice.
"We recognise the risk of professional indemnity insurers withdrawing from the market for DB pension transfer advice.
"We are reviewing the situation as part of our work on the funding of the FSCS but it must be clear that if firms want to do this business, they must have either suitable PII or their own resources.”
maria.espadinha@ft.com
