The Financial Conduct Authority has today revealed the state of the defined benefit transfer advice market and illuminated its work into tackling consumer harm.
The City watchdog observed signs of improvement in the DB market with the number of transfers gradually declining.
It also revealed, however, that the threat of harm was growing in the wider consumer investments market.
Here are the devilish details in the regulator’s figures:
1 DB transfer adviser numbers
The number of active firms in the pension transfer space stood at 2,426 in 2018 — around 1,100 more than the 1,310 firms currently active in the DB market.
Some 103 of firms currently holding permissions were new entrants to the market too, meaning around 1,000 firms have ducked out of the DB market over the past two years.
The FCA said the reduction in firms could be as a result of not having adequate professional indemnity insurance for this form of advice, while other firms have given up their permissions as they had not used them for an extended period.
2 Conversion rates
The proportion of clients who were advised to transfer out of their DB scheme has significantly fallen, the data showed.
Since the period from April 2015 to September 2018, the conversion rate for recommended transfers has declined from an average of 69 per cent to an average of 57 per cent between October 2018 and March 2020.
This, the FCA said, indicated its actions were having an effect and that firms are heading its message that, in most cases, a transfer is not in the client’s best interest.
3 PI problems
The City watchdog also sounded a warning over PI insurance as it revealed 9 per cent of advisers offering DB advice did not have the appropriate cover to do so.
It said: “We expect that all firms providing DB transfer advice have appropriate PII cover in place, in line with our rules. If they don’t, they must not carry out DB transfer advice.”
A hot topic over the past few years, it also said it was continuing to work with interested stakeholders to monitor and assess the availability of PI insurance for the transfer space.
4 Contingent charging
The data showed its contingent charging ban will likely have a further impact on the DB transfer market, with 785 firms (60 per cent of all those that gave DB transfer advice) using contingent charging between October 2018 and March 2020.
Some 80 per cent of clients, nearly 40,000, who transferred between October 2018 and March 2020 were charged contingently, the figures show.
But with the method banned since October 1 last year, the market is likely to see a significant shake up.
5 Insistent clients
The number of insistent clients — those who proceeded to transfer their DB pension scheme when advised not to — meanwhile is on the decline.
Between October 2018 and March 2020, 121 (9 per cent) of active firms arranged pension transfers for 2,963 insistent clients, representing 8 per cent of all those who transferred.
This was down from a 13 per cent average from April 2015 to September 2018.