Fears over regulatory risk involved with defined benefit (DB) transfers and a lack of professional indemnity cover have pushed financial advice firms to consider phoenixing.
Henry Blunt, managing director of Retiring IFA, a firm which specialises in matching potential buyers with advisory vendors, expressed concern at the number of small businesses that were considering closing their old firm and starting again because they feared future liabilities over defined benefit (DB) transfers.
He said: "I have seen maybe seven businesses over the last month considering this on the basis they cannot get professional indemnity (PI) cover, simply because of the excess the insurers are putting on past DB transfers.
"Some firms are being charged £50,000 excess for having done a DB transfer, and as a small firm, such a charge can put them out of business."
According to Mr Blunt, the "one or two dodgy" players in the DB market, who have carried out transfers without due diligence and proper assessment of client suitability have caused everyone else to suffer.
This is especially the case since the regulatory attitude from The Pensions Regulator and the Financial Conduct Authority (FCA) seems to be that the default position is DB transfers are not suitable, he said.
"They have put all DB transfer business under this one banner", Mr Blunt said.
He said a lot of the firms he has seen may have carried out DB transfers for another advisory business in the past, but are now worried they will not be able to get PI cover even though the original adviser still bears the responsibility for the client.
"These fears are pushing people towards considering a legal way to phoenix as a means of securing the PI cover they need at a price they can afford on a new firm", Mr Blunt explained.
Phoenixing -the process by which an old firm is declared insolvent or closed down by the owner, only for him to set up another business in a new name - is not illegal in the UK, as there is nothing illegal about an entrepreneur being unable to continue in his or her old firm, paying off their debts, closing down and then trying again later on.
However, where the FCA has taken a dim view of advisers phoenixing is where the owners shut down their old firm, thinking they can escape from their debts or from bad advice they know is on their books, and then transferring their client book into a new firm and carrying on as before in a new name.
In May this year, the FCA and the Insolvency Service agreed to a deal intended to cut down on the number of phoenix companies operating in the UK.
The move is intended to prevent bad advisory practices and unethical individuals setting up again and causing client detriment.
While Mr Blunt said he understood why some firms were asking about ways to phoenix legally - without any debts, and without any known bad advice on their books - he strongly warned against it. "We would never advise people to undergo phoenixing."