Nearly half of advisers could exit DB market in 12 months – Royal London and LCP

Hannah Godfrey reports

Nearly half of financial advisers currently operating in the defined benefit (DB) transfer market could exit by this time next year, with issues surrounding PI insurance appearing to be the main driver of change, research has found.

A joint research paper by Royal London and pension consultancy Lane Clark & Peacock surveyed more than 750 individuals working at adviser firms. Almost three-quarters (71%) of those had given DB transfer advice in the last three years.

A third (35%) of respondents said they were unsure if they would be operating in the DB market in 12 months, while a further 8% planned to exit.

Market exits

The research paper asked respondents who had exited the market what caused them to leave. Of those, 82% cited issues with professional indemnity (PI) insurance as a reason they had stopped carrying out DB transfers, with one respondent pointing to a 500% increase on their PI bill.

The respondent said: “PI increased 500% and [sic] told to stop doing DB transfers as we were a small firm and further DB transfers would put our firm into a higher risk category for PI purposes. However, they are very happy with the DB work done to July 2019.”

Two in five (42%) of those who had exited the market said DB transfer work was outside of their firm’s risk appetite, and a further 40% cited the increased level of regulatory scrutiny. Just 2% of respondents mentioned having to deal with claims and disgruntled customers.

A small minority of respondents said they would consider re-entering the market. Many of their responses mirrored the reasons for leaving in the first place, and again focused on PI insurance and regulatory issues.

Hefty PI increases have been driving changes in the adviser market for some time. In April 2019, the Financial Ombudsman Service awards limit increased from £150,000 to £350,000. At the time, the Financial Conduct Authority admitted PI costs could rocket by between 200% and 500% in a “worst case scenario”.

Elsewhere, one in three advisers reported applying a minimum transfer value to DB work, with the most common minimum being £100,000.