The number of firms offering defined benefit (DB) pension transfer advice fell “dramatically” in 2019 to just 41 per cent, analysis has revealed.
The Aegon Retirement Advice in the UK report, produced in conjunction with NextWealth and Richard Parkin Consulting, showed that a further 17 per cent of firms used to provide DB transfer advice but have stopped doing so.
Furthermore, whilst 4 per cent of firms were looking to start offering DB transfer advice in 2018, 15 per cent now intend to “significantly curtail” the volume of business they intend to do over the next 12 months, with a further 3 per cent expected to exit the market completely.
Smaller firms, with less than £50m of assets under advice, were least likely to offer transfer advice services with just 28 per cent currently offering this, compared to 57 per cent of firms with assets above £250m.
Over a third (36 per cent) of firms cited the overall business risk of giving DB transfer advice as the main barrier, while a further 33 per cent listed this as an “additional reason” against offering the service.
Increases in professional indemnity insurance (PII) premiums were also cited as a core reason for 18 per cent of firms, with increase in PII excess ranked by a further 14 per cent.
The report explained: "DB transfer advice has been lucrative business for many advisers, driven by high transfer values.
"However, these same high transfer values also mean that costs of reparation can be significant where advice is found to be unsuitable.
"Increased activity by claims management companies, an increase in the Financial Ombudsman Service compensation limit and a further hardening of PI insurer attitudes have made this a much riskier business for advisers."
The findings follows warnings from the Financial Conduct Authority (FCA) that over 76 per cent of firms with DB transfer advice permission could be giving harmful advice, potentially costing savers £20bn over five years.
The FCA had planned to introduce more stringent rules for pension transfer specialists this year, but these have now been postponed until October 2021.
Meanwhile broader reforms around DB transfer advice, including plans to ban contingent charging, have been delayed by six months, and are now expected in the second of third quarter of 2020.
Despite these delays, challenges around meeting FCA rules changes were listed as an additional reason by 18 per cent of advisers, while the proposed ban on contingent charging was also cited as an additional reason by 10 per cent of firms.
Furthermore, 84 per cent of advisers either agreed or strongly agreed that the contingent charging ban could limit advice accessibility in future.
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