FCA to step up engagement over poor transfer standards

The Financial Conduct Authority (FCA) has told “every active firm in the market” to expect to hear from the regulator in 2019 as “too much advice is not of an acceptable standard”.

In its analysis of pension transfers from DB schemes, the FCA found that, of the 234,951 members that received advice between 2015 and 2018, 162,047 (69 per cent) had been recommended to transfer out, while the remaining 72,904 (31 per cent) had been recommended not to transfer.

The FCA stated that it expects advisers to start from the position that a pension transfer would be “unlikely to be suitable for their client”.

The regulator continued: “As such, we are concerned that 69 per cent of the 234,951 total members seeking advice had been recommended to transfer.

“What is more concerning is that 1,454 firms of the total 2,426 firms providing transfer advice during this period (60 per cent) had recommended 75 per cent or more of their clients to transfer.”

Of the members advised not to transfer, 9,534 (13 per cent) transferred anyway, while a total of 59,086 did not proceed in the advised way.

The average transfer value was £352,303 and the total value advised upon was £82.8bn.

Canada Life technical director, Andrew Tully said that the data does not provide any information on the “key issue” of advice quality.

He continued: “Many firms have operated an informal triage service over the last few years, so the figures for those not proceeding to advice are likely to much higher than those mentioned by the FCA.

“In addition, there is often a relatively high cost for advisers to undertake work to consider whether a transfer is suitable or not and this will put off many people.”

AJ Bell senior analyst, Tom Selby, added: “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 also found that 174 firms reported that they had accepted introductions from unauthorised introducers and 4,066 clients had been recommended to transfer following these introductions.

Royal London director of policy, Steve Webb, said that the “standards of DB advice still vary far too much”.

He continued: “Good advisers are rigorously screening out people who should not transfer and make clear the advantages of staying in a DB scheme. But some are relying on unregulated introducers to drum up business and seem to be leaning much too far towards recommending transfers.

“The sooner that action is taken against those who are not doing a proper job, the more confidence consumers can have when they seek transfer advice”.

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

The FCA concluded: “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.”

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