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IFAs recommending DB pension transfers in FCA’s crosshairs

Regulator outlines review as industry warns against making life even more difficult for clients


The Financial Conduct Authority (FCA) has said it is disappointed with the number of advice firms recommending people transfer out of defined benefit (DB) pension schemes.

This comes after the its survey found 69% of the 234,951 pension scheme members seeking advice between April 2015 and September 2018 had been recommended to transfer by firms with DB permissions.

There are 3,042 firms in the UK that hold the permissions, with 3,015 firms responding to the FCA’s long-running business survey.

It found that 2,426 firms had provided advice on DB pension transfers.

Of them, 1,454 firms had recommended 75% or more of their clients do so.

The total number of clients not accepting the advice that was given was 59,086 and 620 firms (26%) admitted facilitating transfers for so-called “insistent clients”.

Rigorous screening

Steve Webb, director of policy at Royal London, said to IA: “It is clear that standards of pension transfer advice are still far too variable. The best advisers are rigorously screening out people for whom transfers should not be an option and are clear about the advantages of staying in DB.

“But some advisers are relying far too much on unregulated introducers to drum up business and are leaning much too heavily towards promoting transfers.”

Some 174 firms (fewer than 6%) reported that they had accepted introductions from unauthorised introducers and 4,066 clients had been recommended to transfer following these introductions.

Webb added: “The sooner action is taken against those who are not doing right by their clients, the more confidence consumers can have when they seek transfer advice in future.”

Not suitable

According to the FCA’s survey, of those receiving advice, 162,047 members (69%) had been recommended to transfer out and 72,904 (31%) were not.

But 9,534 (13%) clients went against the recommendation not to transfer and were processed as “insistent clients”.

Of the 171,581 clients who were recommended to transfer or who did so as “insistent clients”, 120,735 (70%) signed up to ongoing advice from the firm recommending the transfer.

Megan Butler, executive director of supervision, wholesale and specialists at the FCA, said: “We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable.

“It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.

“Deciding whether to transfer out of a DB scheme is one of the most complex financial decision a consumer may have to make and it is vital customers get high quality advice.

“Our ambition is for pension transfer advice to reach the same standard as that of the rest of the financial advice market.”

Complex decision

Tom Selby, senior analyst at AJ Bell, said: “Advisers who have recommended DB transfers to clients are firmly in the FCA’s crosshairs and can expect further scrutiny over the coming year. While preventing consumer harm must remain the regulator’s central priority, it should be careful not throw the baby out with the bathwater.

“Clearly putting a stop to inappropriate advice is front-and-centre for the regulator, but in pursuing this aim the FCA needs to be mindful of the impact any action could have on the supply of advice and the ability of people to transfer where it is in their interests.

“Whether to transfer out of a DB pension is a complex decision based on a number of factors specific to the individual involved and advisers are best placed to make that assessment.

“It’s worth noting a heady cocktail of pensions freedoms, DB pension scheme deficits and record low gilt yields over the past few years have created an environment where pension transfers will have looked more attractive to people and this is perhaps reflected in some of the figures announced by the FCA today.”


The FCA’s survey also found the average transfer value was £352,303 ($443,358, €395,694), which is equivalent to a total value advised upon of £82.8bn.

This compares to £1.57trn in DB schemes eligible for the Pension Protection Fund, as at 31 March 2018.

At 30 September 2018, there were 6,509 pension transfer specialists engaged in providing advice to DB scheme members across 2,426 firms.

Next steps

The FCA said it will be directly assessing the firms most active in this market throughout 2019 and it will be writing to all firms where it “identified potential harm” in their DB pension transfer advice.

It added: “We will set out our expectations and the actions firms should take. Depending on the outcome of the assessments in 2019 we will consider extending our assessments to take in a wider range of firms in 2020.

“In 2020, we will also roll out a series of events aimed at raising standards in the industry and engaging with a wider range of stakeholders.”

David White, managing director at independent financial specialist QB Partners, told IA: “What is positive is that the FCA is committing more resources to this issue and are embarking on a programme to visit engage with advisers in the market to varying greater degrees than they do currently.

“This should enable them to significantly increase their sample sizes and provide more accurate results. It will also help them to give guidance which should improve the suitability of advice in the market.

“Unintended consequences of this review are that the cost of PI and subsequently the cost of advice is going up. Couple this to that fact that the FCA are considering banning contingent fees and there is a risk that in the future, clients will find it more and more difficult to source correct advice on DB transfers and those clients for whom it is suitable to transfer, will not be able to.”

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