Three out of four firms delivering DB transfer advice are giving “potentially harmful” information to pension scheme members, according to the Financial Conduct Authority.
These figures were released as part of a Freedom of Information (FOI) request by pension and employee benefit consultants Buck. As a result of their request the FCA confirmed it is writing to 1,841 of the 2,426 advisory firms whose DB transfer advice it scrutinised as part of market-wide research last year.
At the time the FCA reported that this market-wide research found 69 per cent of members who had asked for DB pensions advice had been recommended to transfer out of their DB schemes, a proportion that the FCA deemed higher than optimal for scheme members.
Buck’s FOI request also found that scheme members were more likely to be advised to transfer out of their DB schemes when they went to firms with fewer pension transfer specialists (PTS). 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.
Additionally, at firms where there was just one PTS, 74 per cent of members who asked for advice were recommended a transfer. This figure was significantly higher than the 66 per cent recorded at firms with multiple PTS.
Buck principal and senior consulting actuary Mark van den Berghen says:“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 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.”