Given they have seen billions in assets flow in from final salary transfers, it would be fair to say providers have been winners from the explosion of the market.
With almost no regulatory downside compared to that of IFAs and a huge boost to their sales, defined benefit (DB) transfers are akin to eating fish that has already been caught, smoked and chopped up for providers.
No risk, great reward
Earlier this month, a number of advisers told me they were concerned providers were enjoying huge benefits from DB transfers. At the same time providers are putting out client/adviser communications that encourage transfers. They are also offering free tools such as free transfer value analysis reports. These all make it more likely IFAs will complete transfers.
Providers are encouraging the DB transfer market and why wouldn’t they? The worry for advisers is providers do not have to face up to the Financial Conduct Authority (FCA) over the advice given, but still enjoy the annual management, platform and fund management fees.
Phil Young, managing partner of consultancy Zero Support, says regulatory risks mean providers are happy to allow IFAs to take on all liability when it comes to these transfers.
‘A lot of these providers aren’t prepared to take the liability on themselves,’ he says. ‘They could set up an advice unit but are concerned about the liability, so it is very easy for them to encourage the market. You just have to look at the number of providers that have been training advisers [on DB transfers] over the past 12 months.’
Young also believes transfers are behind providers’ positive business figures in recent months.
‘There is a good number of providers out there that are way ahead of their targets this year and last, to the tune of exactly the amount of money that has come in from DB transfers. Informally they have told me this is the case,’ he says.
Smoke and mirrors
When advisers put client money into an insurer’s product they need to tell them if it has come from a DB transfer, so all the providers will know exactly how many of their assets are coming from final salary transfers.
But when I asked seven of the biggest providers how much they had taken in from transfers their answers were disappointing.
Aegon, Scottish Widows, Prudential, Zurich and Royal London all failed to come forward with how much they had taken in from transfers over the past year.
Standard Life said in a recent call with journalists, it had taken in £900 million from transfers onto its drawdown products in the first half of 2017. Aviva also told me it had taken £1.1 billion onto its platform over the past year.
Declaring their interest
With five providers failing to say how much they had taken in, it is clear insurers are not too keen to publicise the benefits they enjoy from transfers.
The lack of transparency is disappointing. Insurers are the home for this massive movement of capital and so they are part of the chain, even if they are not the ones signing off papers with the customer.
Providers are also the ones with the real lobbying power. Just look at the response to the FCA’s advice consultation, not to mention FCA and Treasury contacts. They have the power to shape the direction of the market.
It is unfair for them to give talk after talk and write article after article on the subject in the press without keeping IFAs and the public in the loop about their own benefit from these transfers.
They have their own motives for wanting the transfer craze to continue but they should be upfront about their reasons.