DB transfer advice: Has the FCA crackdown changed anything?
The defined-benefit transfer market is a contentious area marked by regulatory risk, but has the recent regulator crackdown made any difference to IFAs ready to give it a shot?
The Financial Conduct Authority has harshly criticized the DB advice space following the British Steel transfer scandal.
It removed permissions from advisers who had given errant advice to the DB and also banned conditional fees on transfers, to eliminate bias in the system.
As a result, the FCA’s intervention led to a number of companies – key players in the debacle – shutting down their transfer advisory service, while others went out of business.
But the problems are not confined to British Steel’s advisory community. Bad DB advice is prevalent and although the regulator has set foot on the ground to improve the market, it has created new problems.
The overall DB advice industry has shrunk and as it is compulsory to receive advice on transfers worth over £30,000, customers often struggle to find a pension transfer specialist who can serve them.
The high costs associated with professional indemnity insurance have also played a role, with many companies leaving because they cannot afford to cover themselves or because they cannot obtain the insurance altogether.
Matt Connell, director of policy and public affairs at the Personal Finance Society, said: “Access to affordable DB pension transfer advice has been reduced in recent years and will mean that people will have to take advice regulated to be able to exercise their rights under the pension freedoms for DB pension transfers find it difficult to do so.
“We have seen an increasing number of cases where PIIs limit the number of pension transfer cases per year [or] some have completely removed the cover.
To fill this gap, the FCA has introduced a new form of advice called short advice, but has it really improved the quality of advice?
Do abbreviated tips work?
Abbreviated guidance came into effect in October 2020 alongside the contingent load ban. Contingent billing means that a client only pays for advice if they make a transfer and the regulator thought this setup might create the wrong incentives.
The abbreviated notification falls between triage and full transfer notification, but can only result in a recommendation not to transfer. It begins with an introductory discussion with the client, where the advisor can gain high-level information about their situation and then determine that they are not a viable transfer candidate.
A Freedom of Information request to the FCA, submitted by FTAdviser, found that 343 companies have provided abbreviated advice since its introduction, but also that 558 companies no longer provide transfer advice since it came into force. rules.
To put that in comparison, that’s a total of 1,160 companies still operating in the DB market.
FTAdviser understands that the FCA cannot say whether abbreviated advice is successful or not, as it is not mandatory and it is up to companies to decide whether or not to use it with their clients. But among those who have decided to give it a shot, many say they are satisfied with the results.