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FCA warns of 'serious consequences' for IFAs after DB transfer review

The Financial Conduct Authority (FCA) has warned firms can expect 'serious consequences' after its latest pension transfer work found that less than 50% of advice was suitable.

FCA warns of 'serious consequences' for IFAs after DB transfer review

The Financial Conduct Authority (FCA) has warned advice firms can expect 'serious consequences' after its latest pension transfer work found that less than 50% of advice was suitable. 

The regulator has today published the findings from data collected from 45 firms this year. Following this initial data collection the FCA conducted further assessment work including file reviews and visits to 18 of the firms. 

Since April 2015, these 18 firms have advised 48,248 clients on defined benefit (DB) pension schemes, resulting in 24,919 actual transfers. The regulator confirmed that two firms voluntarily ceased pension transfer advice and a further two varied their business models and surrendered their transfer permissions. 

Of the 154 transfers reviewed by the FCA across the 18 firms, 74 were deemed suitable, 48.1% of the total, while 45 were deemed unsuitable and 35 unclear.

Across the four firms which either varied or suspended permissions, 32 files were reviewed and the FCA identified only one suitable recommendation.

Today's update stated: 'We are disappointed to have found that less than 50% of the advice we reviewed was suitable. Our results are based on our targeted work and are therefore not representative of the whole market.

'However, it is particularly concerning that, despite our feedback to the sector, firms are still failing to give consistently suitable advice.'

Earlier this year the FCA requested data from every firm in the UK with pension transfer permissions, and stated that any firm active in the market 'can expect to be involved' in its work during 2019. 

'We will not hesitate to use our investigatory powers where we identify evidence of serious misconduct which could have caused harm to consumers,' the FCA added.

What the review found

The review revealed that senior management at several firms had failed to ‘identify and mitigate’ the risks associated with DB transfer business, either through lack of understanding of pension transfers or insufficient oversight of advisers.

In some cases, the FCA added, senior managers ‘failed to adequately understand and manage the conflicts of interest caused by their charging structures’.

The report said: ‘We continue to see firms whose volumes of transfer advice have risen significantly, but whose risk management has not been effective and resources have not been adequate to match the increased demand.

‘We saw firms adopting commoditised processes which did not take account of the needs of customers. We also observed that risk management tools were not keeping pace with the growth of firms’ pension transfer businesses, which resulted in issues in those firms not being identified.’

The regulator urged firms to ‘pay close attention’ to its feedback review and amend their processes as appropriate.

It added: ‘We are disappointed by the number of firms we assessed which should have been aware of our concerns but had not taken effective action to address the issues we have identified. Firms failing to review or amend their business models in light of our concerns can expect serious consequences.’

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