Defined BenefitJan 29 2019

Advisers still seeing opportunities in DB transfers

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Advisers still seeing opportunities in DB transfers

The majority of advisers continue to look for opportunities in defined benefit pension transfers despite the regulator threatening action in the field.

A survey of 100 financial advisers found 45 per cent saw DB transfers as a key area of growth in the coming two years.

This was despite the problems in the market of late and suggestions activity was cooling.

Aegon's research was carried out in September last year. In December the Financial Conduct Authority (FCA) issued a fresh warning about suitability in transfer advice, after it found less than 50 per cent of the advice it had reviewed was suitable.

Advisers have also been facing issues with professional indemnity insurance as a result, with insurers increasingly wary about the business.

Steve Cameron, pensions director at Aegon, said: "Whilst transfers volumes may have declined from a peak at the beginning of 2018, demand for such advice continues to outstrip supply and as advisers gain confidence in the recent FCA guidance, which sets out its expectations of ‘what good looks like’, we expect to see numbers rise again.

"However, we need to resolve issues obtaining PI insurance."

Martin Bamford, chartered financial planner at Informed Choice, had not expected to see DB transfers at the top of the list of opportunities. 

He said: "I’m surprised to see DB transfers viewed as a big opportunity, with increasing difficulty obtaining affordable PI insurance to cover this advice activity and regulatory scrutiny hardening too. 

"Advisers choosing to operate in this market and proactively looking for clients seeking DB transfer advice will need a bulletproof advice and financial planning process in place, with an understanding PI insurer willing to make any volume of business."

The research also showed more than half of the advisers polled saw Brexit as the biggest threat to the advice sector, with just 27 per cent viewing the UK’s exit from the EU as a key opportunity. 

Pension scams also topped the list of significant threats to the industry, with 46 per cent concerned by the issue.

Mr Cameron said: "It would take a brave person to attempt to predict with any certainty the macro economic or political implications of Brexit and how investment markets will perform as we seek a Brexit deal and then move through the process of leaving the EU. 

"Advisers may fear that any damage to the UK’s economic performance may mean less new money for individuals and employers to invest.

"However, those with existing investments will need help to ride out short-term uncertainty without damaging long term prospects, creating a major advice opportunity. In times of uncertainty, professional advice can add huge value."

But Mr Bamford thought advisers might be overstating the risks associated with Brexit.

He said: "Our future relationship with the EU remains very uncertain, but for UK based advisers who work with UK resident clients, there is unlikely to be much in the way of real impact from even a no-deal Brexit. 

"The global economic slowdown is far more relevant to investment market volatility than a domestic political issue like Brexit."

Meanwhile new advice and guidance models from the Financial Advice Market Review received a lacklustre reaction from advisers taking part in the survey, as just 10 per cent of advisers identified these as an opportunity. 

Mr Cameron said: "The biggest disappointment, if not surprise, is that the Financial Advice Market Review is failing to register as offering an opportunity.

"This joint Treasury / FCA initiative to help close the ‘advice gap’ generating 28 recommendations, all of which have been taken forward in some shape or form and really should have been an opportunity to further strengthen the advice market.

"While other Aegon research points to advisers continuing to support the principles, the unfortunate reality is nothing much has changed in practice."