Problems with obtaining affordable professional indemnity cover has resulted in more than 30 advice firms leaving the defined benefit transfer market in only three months, the Personal Finance Society has said.
In the last three months of 2019 more than 30 advice firms pulled out of the PFS’s pension transfer gold standard as they were no longer operating in this market.
The gold standard asks firms to commit to a set of standards in managing DB transfers.
It was launched on April 9 alongside a guide to help the public better understand what to expect from a regulated financial adviser when carrying out a DB transfer.
The PFS has today revealed that at the end of 2019 more than 1,225 advisers had signed up to the standard but in the final three months of the year more than 30 firms had pulled out in the space of just 90 days.
These firms stated they were no longer offering pension transfer advice due to restricted access to affordable PI insurance.
Keith Richards, chief executive of the PFS, said he expected the number of firms leaving this market to increase in the coming months as the Financial Conduct Authority publishes final pension transfer advice rules.
Mr Richards said: “We expect the regulator’s new rules to further impact the availability for advice on defined benefit pensions in part due to the rule changes, but mainly because of the severe hardening of the PI insurance market making it hard for advisers to get cover.”
He added: “The gold standard was designed as a consumer guide and while we are delighted to see so many firms align and promote the principles, weekly reports from members regarding the cost or restrictions of available professional indemnity insurance means a growing proportion of the public are being denied the right of pension freedom and choice.
“We are equally concerned at the level of increased financial exposure the retraction of the PII market continues to place on the profession and the increasing noise from the vultures with ambulance lights already flashing.”
National financial advice firm LEBC chose to pull out of the DB transfer market as a result of the watchdog's market review.
Kay Ingram, director of public policy at LEBC, also thought more firms would pull out of the market as they struggle to get the right cover for a low enough price.
Ms Ingram said: “The PI market for IFAs has shrunk with major players pulling out. Underwriters perceive IFA related risks to be too high and they have the option of concentrating on other markets where the risk of claims is perceived to be lower.
“Specifically the PI insurance market is wary of the risk posed by DB transfers. Remaining participants are refusing to include this cover at renewal, regardless of the claims experience they have actually had.
“The remaining market is increasing both premiums and excesses so that the cost of being in this market is increased exponentially. It is unlikely that this cost can be passed on to the consumer and therefore following the FCA’s announcement that contingent charging for DB transfer advice will be banned, it is likely that there will be few providers of advice in this market."
She added: “As the market shrinks, concentration of risk amongst a few firms, is likely to make PI cover for DB transfers as rare as hen’s teeth. The FCA has recently reminded IFAs in a podcast on their website that without adequate cover firms cannot continue to offer this advice.”
The FCA revealed in its January podcast that it had stopped 24 firms from giving defined benefit transfer advice over concerns about the quality of the advice.
This was after it published in June the results of its survey of 3,015 firms between April 2015 and September 2018, concluding that too much of the advice on DB transfers it has seen was "still not of an acceptable standard".
It also voiced concern about the volumes of recommendations, with 69 per cent of clients having been recommended to transfer.
The watchdog found the average transfer advice value was £352,303, equivalent to a total value advised on of £82.8bn. This included both actual transfers and advice against it.
The FCA is concerned that firms are recommending that large numbers of consumers transfer out of their DB pension schemes, despite its stance that transfers are likely to be unsuitable for most clients.
amy.austin@ft.com
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