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Less than 50% of DB transfer advice deemed suitable

Less than 50% of DB transfer advice deemed suitable

The Financial Conduct Authority's (FCA) review of defined benefit (DB) transfer cases found the recommendation was to transfer were suitable in fewer than half of cases.

As a result of these findings, the FCA said it will be undertaking a further phase of supervisory assessments within the current business year.

Since October 2015, 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.

The FCA also considered the suitability of the recommended product where transferred funds ended up, identifying only 35% of products as suitable for the particular client, while 24% were unsuitable and 40% unclear. 

The proportion of suitable cases was much lower than that found in the wider Assessing Suitability Review, which identified 90% of pensions accumulation advice and 91% of retirement income advice as suitable.

The shortcomings included:

  • failing to obtain enough information about clients' needs and personal circumstances;
  • failing to consider the needs of the client alongside the client's objectives when making a recommendation;
  • not making an adequate assessment of the risk clients are willing and able to take in relation to pension benefits.

The FCA also highlighted that some advisers had failed to make appropriate comparisons between DB schemes and the intended receiving scheme, meaning advice was based on inaccurate information. 

Specialist transfer firms

In many cases where firms outsourced DB transfers to specialist firms, those firms made transfer recommendations 'without considering a receiving scheme or investments, or knowing the introducing adviser's intentions for investment'.

It adds: 'This opened up the risk of consumers' pension savings ending up in inappropriate or scam investments.' 

In some cases, a lack of information sharing between the introducing and specialist firms meant the latter could not obtain enough information about clients' needs. 

The FCA also highlighted instances where specialist transfer firms did not make a recommendation for a receiving scheme or investments, leaving this up to advisers once the transfer had concluded. The regulator said it could not see how the specialist firm could provide an accurate comparison between the DB and receiving schemes.

It added: ‘The potential income in retirement in the ceding scheme will be affected by product and fund charges, and the likely returns. The client would not be able to make a fully informed decision without a comparison which took all of this into account.’

Many specialist firms had seen a significant growth in DB transfer businesses, but had not increased their compliance resources accordingly.

Tide of suspensions

Already this year New Model Adviser® has revealed how a number of firms that take outsourced DB transfer advice, had suspended their services after a visit from the FCA.

In February New Model Adviser® revealed that international advice firm deVere UK agreed with the FCA to stop providing TVAS reports for third parties to carry out DB transfers. The firm was also issued with a section 166 review which a spokesman said the firm ‘fully supported’.

New Model Adviser® also revealed in June that Scottish adviser Intelligent Pensions, which was taking on outsourced DB transfers, had agreed with the FCA to suspend its DB transfer service. Sources familiar with the case said the FCA was in part concerned over due diligence being done on the introducing IFAs, and specifically where the assets ended up following the recommendation.

Also in June, a subsidiary of Selectapension, Selectapension Bureau Services, announced it was temporarily stopping its DB transfer service following a visit from the FCA. It said ‘due to unprecedented demand’ it was not accepting new DB transfer analysis cases. The group did not stopping its TVAS service from Selectapension.

New Model Adviser® discovered in July that the FCA has visited pension transfer outsourcing giant Tideway as part of its multi-firm project, but took no action against the firm. The firm has previously told New Model Adviser® it completed 458 transfers in 2016 with total assets of £202 million. For 2017 the firm has been conducting transfers at a rate of £50 million a month.

In the same month, specialist pensions firm Heather Dunne IFA (HDIFA) suspended pension transfer business after the FCA identified issues with how it works with IFA firms that outsource business to it.

Rich Fenech, director of Financial Solutions Midhurst, the principal of HFIDA, said: ‘The regulator has highlighted areas of an operational nature, specifically with how we deliver the advice process via introducing IFA firms, which needs to be adapted.’


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