The DB pension transfer market seems to be in a situation where consumer demand is increasing but the number of advisers able – and willing – to conduct this type of business is shrinking. So, how do you think we’ve reached this point?
Not wishing to disagree immediately, but there probably isn’t a lot of evidence of increased consumer demand. What we do have, however, is very clear evidence that the supply of advice in this sector is diminishing fast, and this can therefore give the appearance that demand is on the increase.
There has been quite a lot of information released by the FCA itself which has highlighted the large number of firms that have given up their permissions in the 12 months, and this has had an impact on those firms that have remained in the market.
A few DB specialists have left the market recently, do you think this is purely connected to the difficulty of securing PI cover?
A major reason for this will, of course, be their inability to obtain appropriate PII (professional indemnity insurance) cover, however, undoubtedly, there have been lots of firms who have just simply decided that advice in this area doesn’t fit with their future business model.
The PII market is a real issue, however, I have some sympathy with the position in which they find themselves. PI Insurers, like any other commercial enterprise, are in business to make a profit.
It doesn’t help when you read statements coming out of the FCA that £20bn of client harm has been triggered in the DB marketplace. If you compare this against a total premium book across the whole IFA sector of £70m per annum, you don’t have to be too intelligent to work out that insurers have a real problem that could threaten their very existence.
You regularly speak to advisers, pension transfer specialists and the regulator – what do you think the future looks like for this business area?
Whilst pensions freedom remains, the demand for individuals to receive advice on their options will never diminish. It would be fair to give credit where credit is due, and the recent publication of the methodology the FCA has been using with its thematic review is a real positive step. This document provides firms with a clear framework to assess their past work in this market, and will allow them to make a reasonably accurate assessment of the potential risks it poses to their business.
Unfortunately, this does only cover business written prior to the changes introduced on the 1st October. However, I do know that the FCA has plans to do something similar for business written since the new rules were introduced, which is another positive step for firms that remain active in this market.
Lastly, what would you say to advisers who are wondering whether to remain in, or join, the DB pension transfer market?
Embrace the guidance being provided by the FCA, constantly keep your processes under review and use third parties to check and provide opinion on your advice process.
Not all DB advice is bad, and you should be clear in your mind that, in a lot of instances, your advice will be that a client should remain within their existing scheme; don’t think telling a client this in anyway diminishes the expertise you have provided in reviewing this on their behalf.
Gary Kershaw is a compliance director at The SimplyBiz Group