Financial Conduct Authority issues warning to advisers


Financial Conduct Authority issues warning to advisers

The Financial Conduct Authority has warned chief executives and directors of financial advice firms that it will be increasing its supervision of their pensions advice

Debbie Gupta, one of the FCA’s senior supervisors, said consumers were being asked to take more responsibility for an increasing number of complex financial decisions.

But she said the FCA was seeing “…an increasing number of cases where the actions of firms are resulting in significant harm to consumers’ financial well-being.

“Preventing harm in this portfolio is therefore a key priority.”

The FCA identified four key ways in which consumers of financial advice may be harmed:

  • receiving unsuitable advice for their needs and objectives
  • falling victim to pension and investment scams
  • not receiving redress as a result of the non-payment of FOS [Financial Ombudsman Service] awards and/or failing firms being unable to compensate consumers
  • paying excessive fees or charges for products and services.

Gupta said: “There will be increased focus on these areas as part of our wider supervision of firms over the next two years.”

The FCA will also be carrying out further work on the suitability of advice and associated disclosure. The review will focus on initial and ongoing advice to consumers on taking an income in retirement.

“This evolving market has changed significantly following the pension freedom reforms and we want to assess the outcomes consumers are receiving,” said Gupta.

She also set out the action chief executives need to take.

“You need to ensure the advice you provide is suitable, costs and charges are disclosed clearly, and you act in the best interests of your clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.”

Pension rules were changed in 2015 to allow greater freedom in how pension benefits can be taken.

This has led to increased numbers of transfers from defined benefit to defined contribution schemes, even though the FCA has said that most people will be better off keeping their defined benefit pension.

On defined benefit pension transfer advice, Gupta said too much of it was “still not of an acceptable standard”.

This is despite that fact that the FCA has repeatedly made clear its expectations of financial advisers and strengthened the rules around defined benefit pension transfer advice.

“We also remain concerned firms are recommending large numbers of consumers transfer out of their DB pension schemes despite our stance that transfers are likely to be unsuitable for most clients.

“As a result, we will continue to focus on this area until the quality of pension transfer advice reaches the same standard as the wider advice market.

“We expect you to start from the assumption that a pension transfer is not likely to be suitable for your client. You need to ensure you have identified and are managing the risks associated with DB transfer business.

“This includes any conflict of interest caused by your charging structures, both for advice on the decision to transfer and any ongoing investment advice.

“Inadequate fact finding creates a high risk that your advice will be unsuitable. You must ensure you gather all the necessary information to carry out appropriate pension transfer analysis and make a suitable recommendation. You also need to ensure you have adequate advisory, transfer specialist and compliance resources for your business.”

The letter also covers: pensions and investment scams; adequate financial resources and professional indemnity insurance; ban on promoting speculative mini-bonds to retail consumers; senior managers and certification regime and EU withdrawal.

You can find the full letter at