FCA is concerned and disappointed with the number of DB transfers still occurring

The FCA has published the results of its latest review of the Defined Benefit Pension transfer market. The FCA has called the results of its findings “concerning and disappointing” in particular owing to a large amount of DB transfer recommendations still being made.

The FCA considers that advisors should start from the basis that a recommendation to transfer from a DB scheme will in a majority of cases not be the most suitable recommendation. The FCAs findings from this review, however, have found that in a majority of cases reviewed the advice provided was not to an acceptable standard.

The Data

Their review identified the following key points:

FCA is concerned and disappointed with the number of DB transfers still occurring

What you should do now?

The FCA has started contacting firms and has already begun visiting the most active firms in the DB market. As such if you conduct DB transfers you may be contacted over the next year by the FCA as part of the next phase of their work. As such you must ensure that you and your firm are ready for this. You can do this by:

  • Reviewing your existing DB transfer processes,
  • making sure that your sales process starts with an assumption that a transfer is not in your clients best interests,
  • ensuring that all client files are up to date,
  • ensuring that your data is stored securely but readily accessible and,
  • ensuring that your senior managers and advisers understand that they may be interviewed by the regulator about this.

The long term ambition here is for pension transfer advice to meet the same standards of advice as the wider financial advice market where 90% of all advice provided was considered suitable.

As in a majority of cases, advisers should not be recommending a transfer from a DB scheme, you must make sure that you have the tools in place to identify:

  • Your DB transfer meetings,
  • what the recommendations made were and,
  • the total DB transfers recommended in comparison to those where it was recommended that a client remains in their DB scheme.

You may already be doing this as part of your PI renewal. You should also be recording any action which you have taken following a review of this information. For example, if you identify that a particular adviser is predominantly recommending that clients complete a DB transfer.

We expect that over the next year greater emphasis will be placed on effective triage processes. As such if you have not already done so, you should start looking at implementing one. A triage process aims to give a prospective client sufficient information, to help them decide whether or not to take advice on the transfer or conversion of their pension any further. Based upon the data gathered for this review, where a triage process has been implemented correctly there has been a reduction in the number of DB transfer recommendations. For firms, this means that there is less chance that the advice provided can be considered incorrect. If you are using a triage process, just remember, that you still need to record the number of DB transfer enquires resolved by triage in your DB transfer information returns.

It’s no great surprise to see this kind of release from the FCA, following the activity since pension freedoms, and we expect this to only be the start…

For more information on DB transfers, the risks involved and best practice can be found in our “DB transfer a best practice guide” which can be found here.