Proportion of adviser firms offering DB transfer advice drops to 22%

Research from Aegon has revealed a "worrying and very sharp" reduction in the number of adviser firms offering defined benefit (DB) transfer advice, with 22 per cent of firms currently offering this service, compared to 41 per cent in 2020.

The provider emphasised that this was "far greater" than the 7 per cent fall advisers had predicted in 2020, with 36 per cent of firms who still offer DB transfer advice expecting this to "significantly reduce" volume in the next twelve months.

A further 9 per cent of those currently offering DB transfer advice stated that they expect to leave this market entirely in the next year.

Overall business risk and challenges around professional indemnity insurance (PII) were cited as the top reasons for stopping or reducing transfer advice.

Additional reasons included the Financial Conduct Authority's (FCA's) supervisory activity, with the ban on contingent charging mentioned by a small minority, although just 3 per cent of advisers cited this as the main driver for exiting.

The research was carried out following the FCA's latest rule changes, which introduced the ban on contingent charging, as well as new requirements for advisers recommending a transfer out of a DB scheme.

Aegon had previously warned that the increased regulatory requirements could lead to a lack of available advice, noting however, they have also introduced a "new form of abridged advice", which is designed to allow advisers to more quickly identify customers for whom transferring is unlikely to be suitable, at a lower cost.

Indeed, today's research found increasing support for abridged advice, with 60 per cent of advisers agreeing that this is an effective way of identifying unsuitable transfer advice, compared to 46 per cent in 2020.

However, just 34 per cent of advisers stated that abridged advice with the requirements for a full fact find will save sufficient time and be suitably priced to attract potential clients.

Despite this, over half (51 per cent) of firms are already offering abridged advice, with just under a third (31 per cent) of advisers offering this service for free, whilst those who did charge typically offered the service for less than £1,000.

Aegon pensions director, Steven Cameron, highlighted the positivity around the use of abridged advice as "encouraging".

“Abridged advice can’t conclude transferring is the right thing for a client, but it can indicate where it is clearly not the right thing to do, helping clients avoid paying unnecessarily for the full advice process, as well as avoiding using up advisers’ scarce time unnecessarily," he explained.

Commenting on the findings more broadly, however, Cameron noted that whilst the FCA has noted improvements in the DB transfer market, there has been a "worrying and very sharp" reduction in the number of firms offering this advice.

Indeed, industry experts have previously warned that the DB transfer market remains a "source of real concern", despite positive signs, after recent FCA data also revealed a reduction in the number of firms offering DB advice.

Cameron continued: “What’s particularly concerning is the rate of firms exiting the market while the demand for such advice remains high. The research highlights an acceleration, with the number of firms exiting far exceeding adviser predictions.

“Over the last year, our research shows this has been driven by general business risks, PI cover challenges and FCA supervision activities.

"Some had predicted the ban on contingent charging would also have been a significant factor, but only 3 per cent of advisers cite this as the main driver for exiting.

“Similarly, only 3 per cent say the main driver is lack of client demand. This sets alarm bells ringing as we need to make sure the ongoing supply of advice meets demand or people will be unable to explore their statutory right to transfer.

“General business risk coupled with PII challenges has led to a fall in the supply of DB transfer advice, and there’s a real risk supply will fail to meet demand."

He concluded: “We hope the FCA keeps a close eye on the ongoing supply of DB transfer advice to ensure this stays sufficient to provide an effective market. It’s important individuals have the opportunity to explore transferring which while for many will be unsuitable, for others could offer a life-changing opportunity.”

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