Media coverage of the British Steel saga, comments from politicians and uncertainty on the part of the regulator are combining to increase the cost of PI insurance for firms advising on pension transfers, according to Keith Richards.
The Personal Finance Society chief executive told Professional Adviser insurers were doing what they were able to do by assessing whether they were overexposed to risk before warning the situation could eventually see advisers bearing the risk on their own.
Quoted in the Financial Times this morning, Richards (pictured) had said some professional indemnity insurers had begun to pull back from providing cover for advisers involved in defined benefit (DB) transfer advice, which was resulting in increased premiums for advice firms.
Richards told PA the advisers who contacted the PFS about the increasing costs did not want to be named for fear they would be blacklisted by insurers. He argued media coverage around pension transfers had inflamed the issue, alongside comments such as that by the Work and Pensions Committee that advisers had been acting like "vultures".
"In the same way sentiment can impact on the stockmarket - in a very similar way - the insurers have been tracking the output from the British Steel fiasco, which has itself caught up innocent advisers," he said. "Of course the committee's comments around advisers is pretty broad-brush and statements like that will make insurers nervous."
Last October, a Financial Conduct Authority (FCA) report deemed fewer than half of the DB transfers it reviewed - where the recommendation was to transfer - had been suitable, while last month a report by the Work and Pensions Committee on the British Steel Pension Scheme concluded some steelworkers had been "exploited for cynical personal gain by dubious financial advisers".
"It probably has not helped that the FCA has made comments around uncertainty on a large percentage of transfers it has reviewed," Richards continued. "If you piece it all together, there is a growing concern insurers will be backtracking and will react accordingly.
"The problem is, if the insurers are overreacting, they will be forcing up the cost of advice and leaving the advice community more exposed. Anecdotally, we are already hearing advisers are retracting offering DB transfer advice now. It is becoming too risky and potentially too toxic."
'We recognise the risk'
A spokesperson for the FCA said: "Advising on a transfer from a defined benefit pension scheme is a very complex process and firms must have protection in place for their customers in case they receive unsuitable advice. We recognise the risk of professional indemnity insurers withdrawing from the market for DB pension transfer advice.
"We are reviewing the situation as part of our work on the funding of the FSCS but it must be clear that, if firms want to do this business, they must have either suitable PII or their own resources."
Rowley Turton IFA Scott Gallacher said that while he and his firm had not been affected directly by rising PI costs, the phenomenon was a "major concern" for advisers who wanted to continue offering professional DB transfer advice.
"Otherwise the only companies advising in this area will be those highly dubious firms focused on making a quick buck today and totally unconcerned about the future," he warned.
Last week, Professional Adviser revealed PI insurers were putting financial advisers undertaking DB transfers under increased scrutiny by asking them to complete a supplementary questionnaire as part of their renewal process.
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