Trustees of defined benefit schemes have been encouraged to work with a wider range of IFAs as it emerged a mere 4 per cent of eligible advisers have been appointed by a scheme.
A joint report by Royal London and LCP, published yesterday (September 6), has put pressure on schemes to ensure their members are adequately informed before transferring out.
The report found only 29 out of 750 IFAs surveyed (4 per cent) have been appointed by a scheme.
This comes after LCP told FTAdviser last year a mere 10 IFA firms were rated suitable to be hired by pension schemes, largely due to firms' use of contingent charging, which trustees tend to shun.
According to LCP and Royal London, schemes need to broaden the use of advisers and identify a pool of FCA-registered advice firms who members can use if they wish.
The report stated: “This would not preclude the member from using an existing adviser if they have one, but for most members the adviser made available by the scheme is likely to be an attractive option.
“By having a small number of advice firms handling the bulk of the scheme’s transfer advice, there will also be cost savings for adviser and scheme alike, not least as the adviser gets to know the particular features of the scheme’s benefits and processes in detail.”
To help further, the scheme could then subsidise the cost of the advice, according to LCP.
The trustees could, for example, pay the set-up costs and then pay the firm a retainer or take on the cost of the advice altogether.
The report said some schemes have gone even further and identified a panel of advice firms for members to use, subsidised the cost of advice, and then appointed a further tier of oversight to monitor the financial advisers on the panel to ensure members not only received good service during the transfer but also after.
Steve Webb, partner at LCP, said: “Pension schemes have an important role to play in ensuring that members are fully informed about their options and can access high quality advice.
“Growing numbers of schemes have chosen to appoint one or more advice firms to support members as well as subsidising the costs of advice.
“Members benefit from the reassurance that the scheme has undertaken due diligence on the advice firms involved as well as from reduced advice costs where the scheme is making a contribution.”
DB advice exodus
However, going forward schemes may have trouble locating advisers as rising costs and tighter regulation pushes more firms out of the market.
Royal London’s survey found nearly a third of the 543 firms who had advised on DB transfers in the past three years were no longer active in the market.
Of the firms that had chosen to exit, 82 per cent cited the rising cost and lack of availability of professional indemnity insurance as the reason.
Meanwhile, 42 per cent regarded DB transfer advice as ‘too risky’ for the firm and 40 per cent blamed concerns about regulatory change.