PI insurer zones in on DB transfers with lengthy questionnaire

Professional Indemnity (PI) insurers are keeping a close eye on financial advisers undertaking defined benefit (DB) transfers by asking them to complete a supplementary questionnaire as part of their renewal process.

The PI market has been questioning advisers extensively on their pension transfer business.

Informed Choice managing director and Chartered financial planner Martin Bamford received a supplementary questionnaire on DB transfers from his insurer Markel International when renewing his PI insurance.

The questionnaire asked for details of each transfer case since pension freedoms in April 2015, including the risk level of the client and reasons for recommending a transfer.

Bamford was also asked to provide information about the number of cases where Informed Choice recommended a client did not transfer from their DB pension, and what this was as a percentage of the total.

The questionnaire from the insurer bears similarity to the extensive questionnaire sent from the Financial Conduct Authority in December to 45 advice firms, which also asked for details on all pension transfer cases since the introduction of the freedoms.

"DB pensions advice is not a big focus for us; we made fewer than 40 recommendations in the past three years, and screened out a lot more enquiries who were simply looking for an adviser to sign off the advice," said Bamford.

While Bamford said the cost of the insurance hadn't gone up dramatically, the excess applied to any DB pensions advice was three times as large - from £5,000 last year to £15,000.

"What PI insurers view as high risk product areas tends to change on a regular basis, depending on what's topical," he continued. "No doubt DB pensions will be flavour of the month for a while longer and could create challenges for IFAs who are submitting their PI insurance renewals.

"I would suggest all IFAs need to start reviewing their DB pension transfer advice files now, to collate relevant information like risk levels and critical yields, to make their renewal application easier to complete. It will also save time when the FCA asks for similar data later in the year."

Market-Wide Probe

Markel International told Professional Adviser the wider PI market was paying closer attention to DB transfer business.

"Like the rest of the market, we've been asking more questions about the exposures we face from the advice that financial advisers give to do with DB transfers," it said.

"We started doing this about a year ago and continue to work to deepen our understanding so that we can provide the right cover at the right price."