The Financial Conduct Authority is planning to follow up the findings of its thematic review of the enhanced transfer values (ETVs) market by contacting individual financial advisory firms that have given bad advice to ask them to contact members and offer redress where appropriate.
The review into financial advice to people who were offered enhancements to incentivise them to leave their employers’ defined benefit pension schemes has identified a risk of customers losing out on retirement income due to poor advice.
Published today (21 July), it looked at nearly 300 cases from bulk pension transfer advice exercises between 2008 and 2012, selected from financial advisory firms active in the area.
In a third of these cases, the review found that the advice given to customers was not suitable, although the failings were not equally spread across the financial advisory firms.
The FCA added that any consumer who has immediate concerns about the financial advice they were given should contact the firm which advised them.
Drivers of unfair customer outcomes found in the review included:
• generic templates which were inadequately ‘tailored’ so the advice did not reflect specific member circumstances or give sufficient priority to the members’ own requirements;
• advice where the outcome focused solely on critical yield analysis without full consideration of wider member circumstances;
• not establishing adequately the level of risk a member is willing to take and making fund recommendations which did not match the assessed risk profile;
• the use of default receiving schemes (in some cases with uncompetitive charging structures) and limited consideration of the suitability of a member’s other existing pension arrangements; and
• limited consideration of the tax and in a small number of cases ‘means tested benefit’ implications of accepting the offer.
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.
“All firms active in this complex area of pension transfer activity should think very carefully about the quality of the advice process and assurance framework required to deliver fair customer outcomes.”