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Financial professionals

Published on 13 January 2021

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for financial professionals.

Key developments from 2020

This year has seen a continued focus from the FCA on defined benefit pension transfers. The FCA's view is that too many people continue to transfer from defined benefit schemes with the advice often being unsuitable. In June, the FCA set out a package of measures designed to 'address weaknesses across the defined benefit transfer market', with such measures including a ban on contingent charging. The FCA also produced its 'advice checker' in June, with this document being designed to help customers determine whether they have received poor advice and, if so, what to do about it.

The British Steel Pension Scheme continues to be a specific concern; the FCA's investigations found that only 21% of a sample of advice to transfer from the British Steel Scheme was suitable and they wrote to all 7,700 former members to invite them to revisit the advice received and complain if they had concerns.

There are more dark clouds on the horizon; the FCA sent data requests to 65 IFAs who had advised on transfers from the Rolls Royce pension scheme in October, warning that they would take action if they found unsuitable advice. Also, in what could be a sign of things to come, the Arcadia pension scheme has fallen into the PPF and members of schemes with similarly troubled employers could be tempted to move their benefits. This all comes at a time when advisors are increasingly finding it difficult to obtain PI cover and the market doesn't look likely to soften soon.

What to look out for in 2021

2020 has seen a large number of claims in respect of interest-only mortgages (largely brought by a firm called Pure Legal). It looks like another type of mortgage product could also be an area of concern in the coming years. The FCA published a review into equity release mortgages in June, with some of the advice reviewed being deemed not to have been in the customers' best interests. In particular, the FCA noted that the reasons why a homeowner wanted to look at equity release were not always challenged and alternative means of raising funds were not always considered. The sums here are significant, with £1.06 billion being released to homeowners in equity release in the first quarter of 2020 alone. This comes as part of a wider review being completed by the FCA on later-lifetime lending.

The most common form of equity release involves a lifetime mortgage, whereby a homeowner takes a loan out against their property, with the capital sum being repayable on their passing. Interest can be paid as it accrues but many borrowers will allow this to roll up and it will then fall to be paid by the borrower's estate, along with the capital sum borrowed. This could significantly erode the sum that can be passed on and could lead to the executors (and/or disappointed beneficiaries) asking whether or not such a loan was actually necessary; in the absence of a firm need to raise capital (without a viable alternative) there is certainly scope for claims to arise, particularly as the interest rates here typically are higher than those available on a traditional mortgage. 
Authored by David Allinson.

Download our full Annual Insurance Review 2021 for more insights.