Over two thirds of advice firms had not carried out an external review of their advice process following the Financial Conduct Authority’s (FCA) review of defined benefit (DB) transfer advice last year.
Last year an FCA review of DB transfer advice cases found that the recommendation to transfer was suitable in fewer than half of cases it looked at.
From October 2015 to mid-2016, the regulator reviewed 88 DB transfer cases where the recommendation was to transfer, and found that 47% constituted suitable advice, while 17% were unsuitable and in 36% of cases it was unclear whether the recommendation was suitable. Where transfers went ahead, the FCA found only 35% of products as suitable for the particular client, while 24% were unsuitable and 40% unclear.
Advisers attending the New Model Adviser® Conference and Awards last month were asked: in light of the FCA’s DB transfer review, how has your firm reacted? They were give three options, below.
- 4% said they had stopped DB transfers.
- 27% said they carried out an external review of our processes.
- 69% said they have not changed anything.
Speaking to New Model Adviser® at the event, Owen Reid, IFA at East Sussex-based Prosperity IFA said his firm had reviewed its transfer processes and was surprised at the poll result.
‘I would have expected the percentage of people who said they stopped doing DB transfers (4%) to be higher. I did not expect most people to say they have not changed anything. I thought a lot more people would have stopped and looked at it in more detail.
‘We have focused on looking at the process. We have just been making sure all the advisers at the firm have exactly the same practices’.
Christopher Morgan, director of Cardiff-based Planet 3 Wealth said: ‘With DB transfers we have not had an external review.
‘We were always very cautious and have a robust process; we are just more cognisant of the potential pitfalls. We have regular reviews with our compliance providers but we would not call one [external compliance consultant] in specifically because our processes per se are not broken.’
Former shadow chancellor Ed Balls was the opening guest speaker at this year's conference. In an interview with New Model Adviser® following his talk, Balls warned current chancellor Philip Hammond the popularity of DB pension transfers has ‘mis-selling potential’.
‘In the last few months, and as New Model Adviser® has been highlighting, these cases of DB transfers driven by those freedoms, you’ve seen what looks like potential mis-selling. And what we have known from the past is when you have had a mis-selling scandal that has the potential to blight the industry and people’s propensity to save for quite a long time.’
We discussed DB transfers with two advisers, Steve Buttercase, principal of Verve Investment Planning, and Anna Sofat, managing director of Addidi Wealth, in an episode of our podcast recorded during last week's conference. Listen below: