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FCA to look further at 'commoditised' DB transfer advice

FCA to look further at 'commoditised' DB transfer advice

The Financial Conduct Authority (FCA) has said it plans to widen its work on defined benefit (DB) to defined contribution (DC) pension transfers in which four firms have already suspended activity.

Speaking at the PIMFA conference in London, Megan Butler (pictured), executive director supervision, investment wholesale & specialists division, told delegates the FCA was concerned that firms had moved to 'commoditised, industrialised process' when advising on DB transfers.  

Butler explained how the regulator had so far worked in this area, and how it planned to continue.

'Over the last two years we have done detailed info requests from 22 firms in their DB transfer business, these are the firms which are most active in this area. Following analysis of this information, a sample of 13 firms was identified and we visited a dozen of these. As a result of our assessments, four of those have chosen to stop advising on DB transfers,' said Butler.

'We think it is right to widen out our work on DB to DC transfers, and we are going to do that.

'We are going to take what we have done over the relatively small population and move to the next group of firms who are active in this area.

'And we are also actively considering what we can do across the broader population,' she said.

A recent study by the FCA found transfer advice was suitable in 47% of cases and destination funds chosen by advisers were appropriate in only 35% of cases. 

Butler explained where issues with pension transfer business had come from in the firms that had suspended their pension transfer permissions.

'We often found the route cause of a lot of these issues related to the business model, the business model between the firm and sometimes the specialist transfer firm. In part some firms which had seen significant growth in their DB transfer business had defaulted to a commoditised, industrialised process, an outsourced process perhaps, not focused on the client's individual needs,' she said.

The FCA has been carrying out a multi-firm supervision exercise into advisers DB transfer advice which has initially looked at 92 firms over the past two years.

Out of these firms, 12 received visits from the FCA and four have agreed to stop DB transfer advice.

At the end of July, FCA executive director of strategy and competition Christopher Woolard told New Model Adviser® it would expand its work on DB transfers. 

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