A joint survey by Aviva and LCP has found that advisers are increasingly concerned about the lack of advice available to consumers with a Defined Benefit (DB) Pension (Final Salary Lump Sum) scheme. The number of firms providing DB advice has almost halved over the last two years as a result of intervention by the FCA who have put pressure on firms to give up their permissions unless they were providing regular advice and pressure from the insurance market to secure Professional Indemnity Insurance cover to provide DB advice.
Of the 200 advisers surveyed over half said they had given up their DB advice permissions and more were intending to do so. The reasons were the high cost of insurance, but also the attitude of the regulator. Many advisers were unhappy with the regulator’s stance that the majority of advice to transfer a DB pension was probably poor advice. We would be in this camp to. We fail to see how the FCA can come up with such wild statements when they themselves don’t have the staff qualified or experienced enough to review DB advice.
The FCA’s view is quite different. They believe that reducing the number of advisers is a good thing because they believe that consumers can be more confident that the advisers they now use will be more experienced and able to offer “better” advice. The view is that big is best. Despite the fact that the ever-reducing number of specialist DB advice means that consumers are unable to get advice and are therefore being denied access to their pension funds.
The FCA would like more pension scheme trustees to appoint advice firms to provide advice on a subsidised basis. Currently only 4% of advisers are appointed by the scheme. There seem to be obvious issues here as far as we can see, including conflict of interest, restriction of choice and the levels of insurance protection being provided to consumers by these so called “bigger firms”.
This is also an interesting move by the regulator considering the latest report from the Personal Finance Society in combination with NextWealth, which has found that it costs considerably more for customers to deal with the bigger firms.
That doesn’t quite sit with the FCA’s model of protecting consumers and ensuring better outcomes does it?
The report found that the comparable costs of dealing with bigger firms (with assets over £500 million) were up to 1.87% higher than dealing with smaller firms when they looked at the overall costs of advice, fund management and platform charges. On the average investment of £350,000 that represents £6,545 in extra charges just for dealing with a big name!
There is no corresponding analysis showing that fund performance is better with the bigger firms, in fact it could well be the opposite.