This week FTAdviser revealed that the Financial Conduct Authority is looking into pension transfer firms that are offering to pay handsome commissions to advisers to take low-value clients off their books post-Retail Distribution Review.
The news followed our earlier revelation that an IFA had seen evidence of firms seeking to muscle in on lower-value clients that advisers may be happy to offload as they gravitate up the value chain.
Whether or not the actions count as an inducement seems debateable in the eyes of readers based on comments, but it certainly seems to be another ‘unintended consequence’ of the RDR and smacks of clients being treated as a tradeable commodity rather than being serviced based on needs.
The FCA is only information gathering at this stage, but it’ll be interesting to see how this progresses.
Who regulates pensions liberation?
In other unscrupulous pension firm news, this week the Advertising Standards Authority has demanded that a pension liberation text message campaign be pulled as the marketing company breached its code by not seeking consent from recipients and not disclosing its identity.
Last month, the Pensions Regulator rolled out an e-learning tool to help pension trustees and administrators recognise the warning signs of ‘pension liberation’ activities as part of an ongoing assault against such schemes by regulators.
What is interesting, though, is that for all of this activity, pensions liberation regulation still seems to be a mess. One adviser told me recently that he tried to report a firm and was passed around three regulators, who each said it was not their jurisdiction. Whose responsibility is it to regulate this? The FCA? The Pensions Regulator?
Some of the rhetoric - and even some of the action - has been encouraging. For example, in 2011 the pensions watchdog secured a High Court ruling that ‘pension reciprocation plan’ arrangements contravene pension law.
HMRC also previously told FTAdviser that investors should stay “well away” from pension offers that claim to be able to provide loans or release tax-free cash from people’s pension pots before they reach age 55. HMRC warned that the total tax charge on an unauthorised payment can amount to 70 per cent.
Bit it still seems that more needs to be done as vulnerable people are being targeted and the regulators do not seem fully to have got their act together.
More bad news for advisers
Once again, there were negative regulatory costs headlines for adviser this week after they were hit with a larger-than-expected rise in the Financial Services Compensation Scheme levy, following the publication of the scheme’s outlook.
Investment advisers will have to pay £78m towards the FSCS levy for 2013/14, £2m more than was initially predicted by the scheme.
It is unbelievable that fees are continually going up. Alan Lakey, partner at Highclere Financial Services, previously told FTAdviser that the fees are a “penalty for success” and I would agree.
If the industry must support those that have failed, there must surely be a fairer way of doing so that does not hit an adviser community that has shrunk due to RDR in the last year. By the way, all other groups saw their levy decrease.
Merchant malaise
Talking of failing firms, FTAdviser revealed this week that the Merchant House, parent company of failed structured product provider Merchant Group and IFA business Merchant House Financial Services, has itself gone into administration as it could not pay its structured products liabilities.
It seems that investors will be paying the price for this as they are likely to be asked to pay additional fees to the former custodian of the plans, Reyker Securities. But what about advisers? Will this fall back on the FSCS as well?
Too much paperwork
Another recurring theme is the amount of paperwork that advisers need to deal with when processing a single piece of business in the post-RDR world. An adviser told FTAdviser that documentation relating to setting up a “basis” personal pension runs to a total of 120 pages.
Commentators on FTAdviser agreed, with one adding that “it is a joke”. Others stated that in cases of multiple products documentation needed are likely to easily run into thousands and he agreed that clients are not going to read them. So what is the point?
IFAs are in agreement that suitability letters are not really for the client but are more for the Financial Ombudman Service, in case down the line the investor alleges mis-selling. Advisers do need to ensure that everything is disclosed to the client, but there must be a simpler way.
Defining regulatory failure
Now that the first month of the new ‘twin-peaks’ regulatory system has passed, things seem to be calming down in terms of paper publications.
This week’s main FCA publication has quantified the value of losses that it would consider to represent a case of ‘significant’ mis-selling that would require it to issue a public report under a new statutory test, with collective losses totalling more than £150m likely to trigger a response.
The FCA says a range of £30m to £150m would be likely to constitute adequate thresholds for requiring action. However, this news did not go down well with the adviser community, with commentators on FTAdviser slamming the move.
One commentator said: “It seems like FCA may be trying to fit a formula around something that just needs common sense.”
Another highlighted that he thought the whole point of implementing the Retail Distribution Review would eradicate mis-selling.
