Advisers who have not conducted proper due diligence when advising people to move from a DB to DC scheme may find the FCA knocking at their doors, according to the City regulator.
The FCA has said it will contact financial advisers about poor advice given to people offered Enhanced Transfer Values to leave their employer’s defined benefit scheme.
A review of ETV pension transfers to defined contribution schemes, commissioned by the FCA, looked at 292 relevant cases from between 2008 and 2012. It found that in a third of these unsuitable advice was given.
Problems included generic templates inadequately tailored to specific member requirements and fund recommendations not matching a member’s risk profile.
It also found there was a huge divergence in charges and commission, with some being a percentage of the fund value, and ranging from £24 to £2400.
In a statement, the FCA said it planned to approach IFA firms, asking them to offer members compensation where warranted.
Clive Adamson, director of supervision at the FCA, said: “It is disappointing that our review saw failings in the advice given, particularly when incentives have been provided to consumers to transfer.”
Bob Scott, honorary secretary at the Association of Consulting Actuaries, said: “None of this is a surprise but in a minority of cases there may have been unfortunate outcomes for members.”
The warning comes after the Treasury announced it would still allow funds to be transferred from defined benefit to defined contribution schemes.
Adviser view
David Trenner, technical director at Glasgow-based Intelligent Pensions, said: “Members will know that there are many long-term considerations and transferring is not just about spurious advantages or questionable investment opportunities promoted by the latest Ucis salesman.”