Steve Carlson, chartered financial planner at Carlson Wealth Management — who has completed three defined benefit pension transfers for his clients in the past five years — saw his PI costs rocket 430 per cent in the past two years and triple since last spring.
The excess on DB cases also increased to £25,000, so Mr Carlson said his capital adequacy requirements have more than doubled as a result.
He said: “It’s absolutely ridiculous. A lot of work went into those cases but now I’m going to end up paying more in increased premiums than the fees the cases generated — I’m going to end up paying for the privilege of doing the work."
Despite paying the extra cost, the insurance does not cover any defined benefit work going forward so Mr Carlson has been forced out of the pension transfer market.
He said: “It seems the small to medium sized firms who would only do the occasional transfer when it was the right thing to do for the client are being forced out of the market as they can't get PI cover to carry on doing that work.
"They are also facing massive increases in PI premiums, even though they are no longer doing DB transfers."
Client detriment
Although Mr Carlson accepted there were numerous cases where consumers had been wrongly told to transfer by "cowboys" who "treated everyone the same", he told FTAdviser there would be “clear client detriment” for those for which transferring out of a DB scheme may have been the right thing to do.
He said: "I agree most people shouldn’t transfer out of a DB scheme. The majority of my clients have some DB benefits, but I have only recommended 3 transfers.
"Something needed to be done as most advice was to transfer, but I think things have gone too far now, and the PI issue is out of control."
Mr Carlson said there were many advisers, like him, who had been forced out of the transfer market as they could not get PI cover for new cases.
The existing clients of such advisers would have typically been able to get pension transfer advice from their adviser at reduced rates or within the fees already paid.
Now, in order to ascertain whether transferring their pension is the right thing to do, such clients will be forced to pay thousands of pounds for a transfer specialist, which may put off many clients from getting advice, Mr Carlson said.
He said the proposed ban on contingent charging could make things "even worse".
"I come across lots of people who have substantial pensions, but very little cash.
"Those people won’t be able to write a cheque for advice, so they simply won’t be able to get the advice, even if they really need it."
State of the market
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.
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 at September 2019, just four in 10 advisers offered DB work, down from half the year before.
As insurers batten down the hatches against DB transfer risk, it is likely the DB transfer advice market could shrink further.
imogen.tew@ft.com
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