Defined Benefit  

DB adviser market shrinks as 4 in 10 offer transfers

DB adviser market shrinks as 4 in 10 offer transfers

The proportion of advisers offering advice on defined benefit pension transfers shrank from more than half in 2018 to four in 10 last year, research has shown.

According to Aegon and NextWealth's Retirement Advice in the UK report, published yesterday (May 13), some 41 per cent of advice firms still worked in the DB transfer advice market in September last year, down from 56 per cent in 2018.

Aegon and NextWealth polled 227 financial advisers and found that of the 41 per cent who did offer DB advice, 3 per cent expected to stop providing it in the next 12 months, 15 per cent expected the volume of cases to “significantly reduce” while 23 per cent thought their DB work would remain the same.

Some 40 per cent of advisers had never provided DB transfer advice, 17 per cent had done but no longer worked in this area while just 2 per cent did not offer the service but intended to start doing so over the next year.

According to the report, smaller firms with less than £50m of assets under advice were the least likely to offer pension transfer advice, with just 28 per cent offering the service.

Half of firms with assets between £50m and £249m provided DB transfer advice while 57 per cent of advisers with assets above £250m were in the market.

When asked why they left the DB market, some 36 per cent of respondents marked the overall business risk of giving DB transfer advice as the main reason.

An increase in professional indemnity insurance premiums (18 per cent) and excess (14 per cent) were the next most compelling reasons.

The report stated: "DB transfer advice has been a lucrative business for many advisers, driven by high transfer values. However, these same high transfer values also mean that costs of reparation can be significant where advice is found to be unsuitable.

"Increased activity by claims management companies, an increase in the ombudsman compensation limit and a further hardening of PI insurer attitudes have made this a much riskier business for advisers.”

PI premiums have shot up for advisers since the Financial Conduct Authority increased the Financial Ombudsman Scheme’s compensation limit from £150,000 to £350,000 last April, despite insurers forecasting a hike in insurance costs that could “cripple” advisers”.

More than a year on, the picture remains bleak. Just last month FTAdviser reported advisers were seeing PI premium increases of up to 900 per cent while others warned the PI market could close off to more advisers due to the coronavirus crisis.

As insurers batten down the hatches against DB transfer risk — with reportedly only two insurers writing new cover for advisers with DB transfer work — it is likely the DB transfer advice market could shrink further.

The City watchdog also played a more direct role in the shrinking of the DB market, with 6 per cent of advisers recording the regulator’s rule changes on DB transfers as an issue and 4 per cent ticking FCA supervisory activity as a deterrent.