What can we learn from the FCA’s DB data dive?

Hannah Godfrey reports...

This morning (19 June), the Financial Conduct Authority (FCA) released data from its probe into the defined benefit (DB) transfer advice market. Here, RP’s sister publication Professional Adviser takes a closer look at the figures.

In response to the findings of its marketwide data probe on DB transfers, the regulator declared itself “concerned and disappointed“.

The FCA’s worries focused on firms recommending large volumes of DB transfers despite the regulator’s stance that transfers were unlikely to be suitable for most clients. Of 234,951 scheme members who received advice on whether to transfer, it found 69% were recommended to leave their DB scheme.

What, however, can be learned from the mine of figures that underpin the headline numbers?

Not all firms are using their permissions

Over the course of the probe, the FCA contacted 3,042 firms that hold the appropriate DB transfer advice permissions. Of those, 3,015 responded, meaning just under 1% of the market failed to keep in touch with the regulator. PA has already revealed a number of firms failed to respond to the FCA’s data request, and that those firms risk seeing their permissions revoked.

Of the 3,042 firms contacted, 2,426 firms provided DB transfer advice between April 2015, when the pension freedoms came into force, and September 2018. This means 616 firms with DB permissions – or 20% of the market – chose not to use them during that timeframe.

As at 30 September 2018, there were 6,509 pension transfer specialists operating in the market across the 2,426 active firms.

Triage changes the data

Some 1,346 firms reported data on clients who had not proceeded after receiving initial guidance known as ‘triage’. The total number of clients not proceeding to advice was 59,086. Some 620 firms – more than a quarter (26%) of those carrying out DB transfers – facilitated transfers for insistent clients.

The data revealed 60% of the firms with DB transfer permissions recommended a client transfer 75% of the time – however, this figure may not tell the whole story.

The FCA acknowledged some firms may have larger numbers of clients being recommended to transfer as they operate an effective triage service that filters out those not wishing to transfer as a result of the initial discussion. When triage services are taken into account, 55% of clients were recommended to transfer.

The regulator also recogonised some firms were not recording the number of people approaching them for DB advice before it issued guidance on triage. As such, the complete data set may not always account for triage and the percentage of clients recommended to transfer could be lower.

Unregulated introducers

The role of unregulated introducers proved to be less problematic than the FCA expected. Just 174 firms – fewer than 6% of those surveyed – reported that they had accepted introductions from unauthorised introducers, resulting in 4,066 clients recommended to transfer following these introductions. That number accounts for approximately 2% of the transfers carried out.

The FCA noted this figure was important as it also showed introducers were not significantly active in this market.

Where next?

The FCA has already contacted some advisers and has begun visiting firms, starting with those most active in the market.

The regulator said the visits would allow it to complete a full assessment of firms’ approaches to DB transfer advice, including key aspects of their business models and processes that could give rise to consumer harm.