DB Developments

Following our review of the FCA’s recently released DBAAT tool, we wanted to also catch up on some of the other developments in the Defined Benefits market in recent days. On Monday 18th January the FCA released data from their most recent review of this type of advice.

Some of the key points, those that made the headlines were:

  • The number of active firms has fallen by almost half, from 2,426 firms (in the 2015/18 review) to 1,310 firms (in the 2018/20). This is a surprise to precisely no-one; we all know there has been an exodus of firms operating in this area. In large due to costs and PI challenges.
  • 785 firms (60% of those that gave DB advice) used the contingent charging basis. Without getting into the pros and cons of contingent charging, I don’t think this figure is particularly surprising (if anything, from anecdotal knowledge) I would have maybe expected it to be higher). That said, with the number of firms already halving, the concern is, if these 60% do not convert to non-contingent charging, we’d be left with only 525 firms giving occupational pension advice. In the whole of the UK. This present many potential issues, with general market forces of supply and demand impacting on the firms and, no doubt, the cost of the advice they give.
  • There were actually 103 new entrants to this market over this time. Lots of musing about why this might be the case. Who was looking at the DB market and thinking “there’s something I want to get into”? Not least because of the PI challenges. We’ve helped many firms go directly authorised and, for the most part, in recent months PI firms have been unwilling to cover new advice firms with insurance for DB transfers. There are some exemptions, but not very many, which makes this a particularly intriguing stat.
  • Hopefully, it’s not related to the somewhat scary stat that out of the firms reviewed, 119 did not have PI cover. Did not have it. As an aside, many PI policies have separate exclusions or limits on DB transfers. We’ve helped a number of firms realise that they had inner limits applied to their policy. If you advise in this area, check your policy as, if there are inner limits, it impacts on your level of capital adequacy. You could be breaking the rules without even realising it.

The FCA seem pretty pleased that the number of clients that have been advised to transfer has fallen, as per the stats below:

DB Developments

This could very well be the good news that the FCA believe it is. But this comes from their view that the starting point is that a transfer is unsuitable. And so the lower this number goes, the better (in their view). But it’s a very sweeping starting point and just driving this figure down doesn’t necessarily mean the right advice is being given.

As a reminder, the FCA published their Policy Statement and Guidance Consultation last year, which cover the latest rules and guidance.

Cathi Harrison – Founder & Director

 

DB Developments

DB Developments