FCA: less than half of pension transfer advice ‘suitable’

The UK financial services regulator has issued a damning report into pension transfer advice – both in the UK and internationally –  which concludes that fewer than half of the companies it surveyed have been giving pension transfer advice that it deemed to be “suitable”. 

The Financial Conduct Authority  issued a statement today expressing “concerns” regarding the suitability of the advice provided by the firms that it assessed, not all of which were specialist pension transfer businesses.

The FCA said that since October 2015 it has reviewed a total of 88 defined benefit transfers, in which the recommendation had been to transfer. Of these, it found that only 47% were genuinely “suitable” and 17% were deemed unsuitable, while in 36% of cases it was unclear if the recommendation had been suitable or not.

The FCA also considered the suitability of the recommended product and/or fund/s, and found that just 35% were classed as suitable, 24% were unsuitable, with 40% deemed “unclear”.

The proportion of suitable cases was much lower than it found in the wider advisory market for pensions advice, such as via the FCA’s Assessing Suitability Review, which found that 90% of pensions accumulation advice, and 91% of retirement income advice, was suitable.

Suitability of advice

The FCA statement said: “Firms must make sure that their personal recommendations are suitable for their clients. However, many firms had designed processes and procedures which result in transfers where the suitability of advice could not be established by the firm.

“This included firms: failing to obtain enough information about clients’ needs and personal circumstances; failing to consider the needs of the client alongside the client’s objectives when making a recommendation and not making an adequate assessment of the risk a client is willing and able to take in relation to their pension benefits.”

Sam Instone, pictured left, chief executive of Dubai-based financial advisory firm AES International, welcomed the FCA’s report.

Instone added that he was surprised that the figure of unsuitable pension-transfer advice in the industry was not “even higher”.

‘Highly technical’

“Internationally, I am sure that this figure would be much higher than 50%. Internationally, there is a lot of money that can be made by firms not doing this properly.

“Pension transfers are highly technical and require a great deal of expertise. We need a lot of experts, lawyers, accountants and financial advisers to make sure that the advice that we give clients is right. We know the rules and are in constant contact with the regulator.

“We completely back their work in this area and are pleased to see a focus on cleaning up pension transfer practices,” Instone added.

The FCA report said that the number of consumers transferring from DB schemes to personal pensions has significantly grown over the past year.

‘Incorrect or inaccurate comparisons’

In some cases the regulator found that advisers had failed to make appropriate comparisons between the defined benefit scheme and the intended receiving scheme. Therefore, advice was based on “incorrect or inaccurate comparisons,” the FCA said.

“It is no use looking at how advisory firms have adapted their business models and processes in response to these changes in the market. We found that some firms are not giving enough attention to customer outcomes when changing their business models, in the wake of the pension reforms.”

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

Read more from Gary Robinson

Close Window
View the Magazine

You need to fill all required fields!