Over three-quarters (76 per cent) of firms with defined benefit (DB) transfer advice permission could be giving harmful advice, a Financial Conduct Authority (FCA) investigation has revealed.
According to a freedom of information request submitted by consulting firm Buck, the FCA’s 2019 market-wide investigation found that 69 per cent of members who had asked for DB pensions guidance had been advised to transfer out of their DB pension schemes.
This proportion was deemed by to be higher than optimal for scheme members by the regulator.
Scheme members were more likely to be advised to transfer out of DB pension schemes if they sought advice from firms with few pension transfer specialists (PTS).
At firms with a single PTS, almost 74 per cent of members that asked for advice were recommended a transfer, while just two-thirds (66 per cent) were told to transfer by firms with multiple PTS.
Out of the 1,454 firms that advised 75 per cent or more of their clients to transfer, more than half (55 per cent) had just one PTS employed.
Buck principal and senior consulting actuary, Mark van den Berghen, 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.”
Yet Van den Berghen noted there were also firms offering “advice which results in poor outcomes for scheme members”, adding that the FCA’s potential ban on contingent charging for DB schemes was “a sign of how serious the concerns are about the current process”.
Due to its concerns following its investigation, the FCA has confirmed that it will contact 1,841 of the 2,426 advisory firms whose DB pension transfer advice was examined during 2019.
These letters will set out the FCA’s expectations and the actions the firms should take.
Recent Stories