The FCA will carry out further work on defined benefit (DB) transfers after it revealed “concerning and disappointing” findings from its marketwide data gathering exercise.
This morning (19 June) the Financial Conduct Authority (FCA) published the results of its data dive on DB transfers that it carried out earlier this year.
The FCA said the results made for “concerning and disappointing” reading because it found firms are recommending large numbers of DB transfers, despite the regulator’s stance that transfers are likely to be unsuitable for most clients.
The financial watchdog revealed it had already started visiting firms in reaction to the data probe, starting with those most active in the market.
The FCA surveyed 3,015 firms for its probe and found that, between April 2015 and September 2018, 2,426 firms provided advice on transferring DB pensions.
It said 234,951 scheme members received transfer advice, and of those, 162,047 (69%) were recommended to transfer out, while 72,904 had been advised to stay in their scheme.
The total value of DB pensions where transfer advice had been provided was £82.8bn, with an average transfer value of £352,303.
And, of the firms offering DB advice, 1,454 of them recommended 75% or more of their clients to transfer. The FCA said this may be because firms have a robust initial triage service – the total number of clients reported as not proceeding to advice from a triage service was 59,086. When ‘triaged’ clients were factored in, around half (55%) were recommended to transfer.
The FCA also offered data on insistent clients and found that, of the 171,581 insistent clients who had transfers facilitated, 120,735 (70%) signed up to receive ongoing advice from the firm. It said 620 of the 2,426 adviser businesses that offered DB transfer advice facilitated transfers for insistent clients.
FCA executive director of supervision, wholesale and specialists Megan Butler left no uncertainty as to the regulator’s feelings on the data it uncovered.
“We have said repeatedly that, when advising on DB transfers, advisers should start from the position that a transfer is not suitable,” she said. “It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.
“Deciding whether to transfer out of a DB scheme is one of the most complex financial decisions a consumer may have to make and it is vital customers get high quality advice. Our ambition is for pension transfer advice to reach the same standard as that of the rest of the financial advice market.”