In a market update issued on 4 June, Mattioli Woods said it had been in dialogue with the Financial Conduct Authority (FCA) in regards to its industry-wide review of the advice being provided on transfers from defined benefit (DB) to defined contribution (DC) schemes since October 2015.
“The group has been in dialogue with the FCA during the review and, in the context of that dialogue, the group is currently undertaking a full review of its work in this area.
“While this review is in progress the group has taken the decision to cease providing advice in relation to the transfer of safeguarded benefits,” Mattioli Woods said in its statement.
The decision is expected to have no material impact on Mattioli Wood’s financial performance, as its pension transfer advice to individuals with safeguard benefits contributes approximately 1.6% of direct revenues, and less to profit due to the “significant compliance costs” associated with the activity, in the 11 months ended 20 April.
Regulation and PI
Firms offering pension transfer advice services have faced rising insurance costs and tougher regulation from the FCA in recent years.
At the beginning of May, professional indemnity (PI) insurance woes forced pension transfer specialist O&M Pension Advice to cease advising clients from 1 July after it ran into “unexpected difficulties” with its insurer.
Further, in January the FCA announced that as part of its industry wide review it will be collecting data from all financial advice firms which hold pension transfer permissions.
The decision to collect the data followed various sample reviews over the past four years showing a high percentage of unsuitable transfers and cases where suitability could not be proved.
The first sample review in late 2015 requested information from six specialist pension transfer firms with 29 detailed file reviews from four firms, the FCA found 24% or 7 contained suitable advice, 35% or 10 contained unsuitable advice and 41% or 12 had unclear advice.
In 2016, it looked at 16 additional firms including 9 visits and 71 sample files finding 38% or 27 were suitable, 34% or 24 unsuitable advice and 28% or 20 were unclear
Late last year and in early 2018, the regulator looked at British Steel transfers. From 129 files from 21 firms, 51% were deemed suitable, 33% unsuitable and 16% unclear.
The FCA released a consultation paper in March as part of its review, requesting feedback from the industry.
Insurance giant Aegon has suggested a “traffic light” approach to help consumers decide whether or not they should seek advice on transferring from a DB or final salary scheme.
To illustrate the approach, the company set out a “straw man” guide.
“If your answers include a number of greens, then as a rule of thumb, it may be worth exploring further although this DOES NOT suggest you should actually transfer.
“If you have one or more red answer, then the rule of thumb is it may be less worth exploring transferring although again this DOES NOT mean you definitely should not transfer,” Aegon said.
The formal approach was being lobbied by Aegon as it said it would be beneficial to both advisers and customers to cut short the process, saving time and money and allow the limited supply of advice to focus on customers more likely to benefit from transferring.
Aegon’s “straw man” concept: