Defined Benefit  

Warning sounded over DB transfer 'advice vacuum'

Warning sounded over DB transfer 'advice vacuum'

The shrinking market for defined benefit transfer advice is "dangerous" for consumers and needs to be rectified by regulators and pension schemes, a report has warned.

A joint report from Aviva and LCP, published yesterday (October 3), found the number of advisers willing and able to provide DB transfer advice has halved in just three years and is expected to shrink further in the future.

The report had surveyed more than 200 advisers, of which 100 were still active in the market. Of these one in three was unsure if they would still be providing transfer advice in a year’s time or had already decided to pull out. 

Roughly half said they advised on no more than one DB transfer per month, while five respondents said their firm advised on at least 100 DB transfers per year, including one which advised on around 1,000.

Of the 116 advisers surveyed who had ceased doing DB transfer work five said they left the market in 2018, 31 in 2019, 58 in 2020, and 16 said in 2021. 

The regulator's own data has shown DB advice firm numbers have shrunk from 3,000 in 2018 to 1,200 now. 

Alistair McQueen, head of savings and retirement at Aviva, warned this development was "dangerous". 

He said: “Individually sought advice continues to be the backbone of the DB transfer advice market, but it is a market under strain. 

“The supply of quality ‘high street’ DB advice is in retreat, leaving many individuals isolated. The industry and its regulators must work together to ensure that those seeking DB advice are not left stranded and exposed.

"Nature abhors a vacuum, and this advice vacuum is dangerous.”

Regulators' attitudes

Issues around professional indemnity (PI) insurance were the main reason advisers were leaving the market, as firms have been unable to obtain renewal cover or the cost has been too high. 

The report found the second factor driving advisers out of the market was the ‘attitude of regulators’.

The report stated: “Some advisers object to the regulatory presumption that transfers are unlikely to be in a member’s interests, whilst others disagree with the FCA’s judgments when historic advice files are reviewed.”

A small number said the abolition of contingent charging in October 2020 made them leave the market.

LCP and Aviva compared these answers with their 2020 survey and found while PI insurance issues remained at the top of the list, individuals were more critical of the role of regulators. 

The providers said this was likely due to the abolition of contingent charging as well as further regulatory activity in light of the British Steel case.

The Financial Conduct Authority last week said it was pleased with the development in the DB transfer space

Speaking on the Inside FCA podcast, Debbie Gupta, director of consumer investments at the regulator, said the regulated market was dominated by "lots and lots of small firms" which made it difficult for investors to navigate and easy for bad firms to hide from the regulator. But its recent "clean up" work had made the DB market more effective.