The number of firms offering defined benefit transfer advice dropped by nearly half to 22 per cent in the last year, despite demand for such advice remaining high, research has found.
According to a report from Aegon and NextWealth, published yesterday (March 22), out of 212 firms surveyed in December 2020, just 22 per cent currently provide DB transfer advice, compared to 41 per cent the previous year.
This means the proportion of firms in this field has almost halved (down 46 per cent) year on year, a significant difference to the 7 per cent fall advisers foresaw in the research last year.
Meanwhile, in the next 12 months, over a third (36 per cent) of firms who currently offer DB transfer advice expect to significantly reduce the volume of such advice, while almost 1 in 10 (9 per cent) expect to leave this market.
Steven Cameron, pensions director at Aegon, said the rate at which firms are leaving the market was “concerning” especially as demand for this type of advice remained high.
The research asked firms who have stopped, or who intend to reduce or stop DB transfer advice, to rank the top reasons for doing so.
Nearly a third (30 per cent) said overall business risk and the growing cost of professional indemnity insurance were the main reasons for leaving the market.
A mere 3 per cent said the regulator’s ban on contingent charging and lack of client demand played a role.
In October the FCA enforced the contingent charging ban, which it said would remove the conflicts of interest which arise when an adviser only gets paid if a transfer goes ahead.
Only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, are exempt.
The ban was introduced alongside the regulator's concept of abridged advice, which was greeted by a frosty reception from advisers initially.
But Aegon’s research suggests that advisers’ opinion on the new form of advice could be changing with 60 per cent agreeing that it is an effective way of identifying clients where a transfer is not suitable, an increase from 46 per cent last year.
However, only a third (34 per cent) of advisers agree that abridged advice with the requirement for a full fact find will save sufficient time and be suitably priced to attract potential clients.
Of those firms offering DB transfer advice, just over half (51 per cent) are already offering abridged advice.
Just under a third (31 per cent) of advisers who provide abridged advice said they offer it for free, but of the two-thirds (66 per cent) who charge for this, most offer the service for less than £1,000.
Cameron said: “Abridged advice can’t conclude transferring is the right thing for a client, but it can indicate where it is clearly not the right thing to do, helping clients avoid paying unnecessarily for the full advice process, as well as avoiding using up advisers’ scarce time unnecessarily.