Last year proved a bumper year for changes to the DB transfer advice market, with more firms having their permissions cancelled or changed than ever before, a freedom of information request by RP’s sister title Professional Adviser has revealed.
Information gathered from the Financial Conduct Authority (FCA) by Professional Adviser revealed 2017 was a stand-out year for firms that changed their pension transfer permissions using a voluntary requirement (VREQ) with the regulator’s agreement.
In practice, a firm changing permissions with a VREQ means it is working with the regulator, and each individual case is unique. Most of the firms connected with the British Steel saga, for example, have requirements to stop performing pension transfers until the regulator is happy with their processes.
In 2017, 18 firms had their permissions changed using a VREQ, which vastly exceeds any other year, and represents an increase of 350% from 2016, when just four firms changed their permissions in this way. So far in 2018, just one firm has had its permissions changed using a VREQ.
Last year also saw an increase in the number of firms to have their transfer permissions cancelled entirely. Some 38 firms had their defined benefit (DB) transfer permissions cancelled, an increase of 31% since 2016, and 58% since 2015.
According to the FCA, a firm can have its permissions cancelled for a variety of reasons – for example, a firm might be put into administration and, as such, have its permissions cancelled or it could have had restrictions placed on it by the FCA and decide to cancel its permissions altogether. After having its permissions cancelled, a firm must go through the authorisation process again in order to regain transfer permissions.
Despite intense media coverage, FCA scrutiny and concerns over the price of professional indemnity insurance for firms with transfer permissions, advisers do not appear to have become too worried about holding the permission.
If it chooses to do so, a firm is able to request a voluntary variation of permissions (VVOP). This simply means the firm has decided it does not want the transfer permission any longer, and does not suggest the firm has had any prior regulator engagement.
A VVOP is different to a cancellation as a VVOP is a choice, while a cancellation is usually a consequence of something else. It is also easier to gain re-authorisation after a VVOP than a cancellation.
The number of firms choosing to request a VVOP has remained relatively stable since the introduction of the pension freedoms. In 2015, five firms requested it, followed by two in 2016, then five again in 2017, and so far three in 2018.
A prior freedom of information request submitted to the FCA by Professional Adviser and responded to in March 2018 found 2,728 firms have applied for pension transfer permissions since April 2015. The vast majority (95%) have since been approved, with just 134 applications either withdrawn or rejected.
By the end of March this year, the market was still growing. Some 481 firms applied for the permissions in the previous 12 months, with a 90% success rate.
The full details gathered through Professional Adviser’s latest freedom of information request are as follows:
Source: PA, FCA
CTC Software co-founder and managing director Nigel Chambers said 2017’s VREQ spike could carry on as the FCA continues to focus on the market.
“There was definitely a spike last year, which must reflect the FCA’s ever-increasing focus on DB transfers,” he said. “This trend may continue as, last year, the FCA focused on the bigger players in the market and especially those who only did the transfer part of the advice, paying too little attention to the ultimate investments. The FCA is now looking more widely so more firms may exit – voluntarily or otherwise.”
Chambers added: “In its recent Policy Statements and Consultation Papers, the FCA has made significant moves to ensure that, when advice on DB transfers is given, it is full, fair and complete. It is to be hoped the regulator will give the industry time to implement these before it seeks to put even more restrictions in place.”