Fears FSA may scare IFAs away from pension transfers

The burden of regulation could scare adviser firms away from providing their clients with pension transfer advice, experts warn.

Following the FSA's review of pension switching advice in December last year, there are concerns IFA firms will increasingly bring in third party specialists to deal with pension transfer business rather than offering advice themselves.

The FSA reviewed pension transfer business due to fears some switches were being made unnecessarily. It found a number of clients were transferred into a SIPP or personal pension without advisers providing justification for the additional costs incurred.

To ensure advisers were compliant with switching requirements, it said the cost involved in a transfer must be justified and all the paperwork behind the switch should be correct.

However, pensions experts are worried the crackdown has destroyed advisers' confidence in helping clients transfer pension plans.

John Moret, sales and marketing director at Suffolk Life, says: "Professional advisers now need to review their transfer files, which is costly, and will need to carefully consider their client's needs and options when making transfers in future.

He says this could turn advisers away from the SIPP market at a time when demand for the products is rising as they are the recipient of the bulk of transfers out of personal and company pensions.

As a result of the rising time and cost burden of regulation, Moret believes many smaller advisory firms will now look to outsource pension transfer business, to ensure they can continue to serve their clients effectively.

David Trenner, technical director at pensions specialist Intelligent Pensions which offers transfer outsourcing services for advisers, believes the FSA's review has prompted advisers to rethink how they deal with switching.

"We are worried the FSA has frightened people away from pension transfers," he says.

"It is right for the regulator to ensure people are wary when making switches, but a general IFA often can not specialise in the way we do. Smaller firms without the support of a large network may find it cost effective to outsource switching advice."

However, Alastair Conway, marketing and proposition director at Cofunds, believes advisers can still carry out their own pensions switching advice and technology has a useful role to play in making this process easier for IFAs.

"Platforms can help make pension transfers and consolidation easier," he says. "Not only can they provide facilities to process management information and client data, but can also be used to make assessments and compare products.

"Technology will not completely remove the need for outsourcing specialist pension transfers, but it can reduce the reliance on it by providing a cost-effective solution for advisers."

Whatever method advisers use to manage their pension switching business, the industry expects the regulator to pay close attention to the advice market and consumer outcomes for the foreseeable future.