As part of the Financial Conduct Authority’s (FCA) market-wide research, the regulator found that 76% of advisory firms have potentially provided damaging defined benefit (DB) pension transfer advice.
The data was revealed through a freedom of information (FOI) request from consulting firm Buck.
It found that, of the 2,426 firms active in the DB transfer space, the FCA has concerns about 1,841. The watchdog has already written, or intends to write, to them to address the issues.
The advice in question was given between April 2015, when pension freedoms was introduced, and September 2018.
Additionally, the watchdog’s investigation discovered that 69% of the 234,591 pension scheme members who asked for this type of advice were recommended to transfer out of their DB schemes.
This was deemed “higher than optimal” by the FCA, Buck said.
Lack of specialist staff
The consulting firm’s FOI also found that most of the firms advising to transfer out (1,454) did not have many pension transfer specialists, with 55% only having one.
Nearly three-quarters (74%) of clients who asked for advice from firms with only one specialist were recommended to transfer – higher than the 66% recorded at firms with multiple specialists.
Mark van den Berghen, principal and senior consulting actuary at Buck, said: “This latest information from the FCA is alarming and should worry all involved – providers, advisers, and scheme members.
“If the FCA fears that the majority of firms advising on DB transfers are giving potentially harmful advice, there are some serious questions to be asked of the industry.
“There are independent financial advisers in the market who work to extremely high standards and invest a lot of time and money into ensuring their advice is both suitable and compliant, with the clients’ best interests at heart.
“However, there are also firms offering advice which results in poor outcomes for scheme members.
“The FCA has taken note of this and is working on behalf of scheme members. The fact that the FCA may ban contingent charging for DB schemes altogether is a sign of how serious the concerns are about the current process.
“Whatever solution the FCA adopts, we hope that it will improve the quality of advice being offered to scheme members.”