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Why is it becoming harder to find pension transfer advice?

Both HM Treasury and the Financial Conduct Authority (FCA) are actively monitoring the availability of defined benefit (DB) pension transfer advice following a sharp drop in the number of financial advisers and firms offering advice in this sector.

Unsurprisingly, this drop is on the back of the FCA’s increasingly frequent clampdowns on the pension transfer sector in recent years. However, it isn’t necessarily regulation directly forcing advisers out of the market.

Insurance costs soar for advisers

Conservative MP John Glen, the economic secretary to the Treasury, said that many advisers were leaving the market due to the soaring cost of professional indemnity insurance.

According to FT Adviser, Glen told a fellow MP via a written answer that the number of firms offering DB transfer advice was 1,160 at the start of February, down from 3,000 in 2018. While admitting the rising costs of insurance had forced many advisers to cease providing DB transfer advice and that these were the consequences of “extensive” FCA intervention, Glen defended the situation.

Glen also said both the government and the FCA believe it is “vital” consumers receive suitable advice, citing the potential long-term implications of making a transfer. Indeed, a lack of understanding of these implications has led to many consumers being mis-sold pension transfers during the last decade and to investigations and action against many advisers.

FT Adviser reported that Glen wrote: “Since 2015, the FCA have identified numerous instances of unsuitable advice being given, putting at risk pensioners’ financial security.

“The FCA recognises that these actions have led to an increase in the cost of professional indemnity insurance for advisers who give DB transfer advice.

“As a result, some firms are choosing not to offer pension transfer advice and others are charging more, due to the cost of the insurance premiums.”

Market shrinking as advisers insurance comes up for renewal

The primary reason for the gradual shrinking of the DB transfer advice market rather than it being a single, sharp shock seems to be that advisers decided not to continue in this space after receiving their professional indemnity insurance renewal quotes.

The British Steel Pension Scheme scandal in 2017 was a significant trigger to tightening regulation, which has driven the increases in insurance premiums. Meanwhile, a joint 2021 study from Aviva and Lane Clark and Peacock (LCP) found that many advisers were also blaming the “attitude of regulators” for leaving the market.

Unsurprisingly, the DB pension transfer advice sector and the FCA disagree on whether fewer firms is a good or bad thing. Another finding from the Aviva/LCP study was that one in three advisers said they were unsure whether they would continue to provide DB pension transfer advice in 12 months or had already decided to discontinue these services. While the study warned a shrinking market was “dangerous” for consumers, the FCA is happy with the move towards there being fewer and smaller firms offering DB pension transfer advice.

The FCA’s director of consumer investments, Debbie Gupta, told the Inside FCA podcast that a market containing “lots and lots of small firms” had made it difficult for investors to navigate the market while also allowing bad firms to fly under the radar. Gupta said the FCA’s “clean up” of the space had made the DB pension transfer advice market more effective for consumers than previously.

What can the FCA do about increasing professional indemnity insurance premiums?

While the FCA is happy with the outcomes of its tighter regulatory practices, it also recognises the difficulties some advisers and firms are facing with professional indemnity insurance premiums. One potential solution the regulator is exploring is the feasibility of providing third-party audits of advice to assure insurers of the quality of the advice firms are providing, thus giving them a lower risk profile and the potential to offer a reduced premium.

Against the backdrop of falling numbers of firms offering DB pension transfer advice, FT Adviser noted that the volume of DB transfers in Q3 2020 was the lowest since 2016.

Did tightening regulation come too late to prevent your transfer from being mis-sold?

If so, you could be entitled to compensation.

Contact us here for a free, no-obligation review of your pension transfer, and discover if you could potentially be in line for thousands in mis-sold pension compensation.


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