Defined Benefit 

FCA applies ‘Lamborghini test’ to adviser files

FCA applies ‘Lamborghini test’ to adviser files

The Financial Conduct Authority (FCA) applies a ‘Lamborghini test’ when reviewing advisers’ suitability reports, according to its former technical specialist Rory Percival.

Speaking at The Great Pensions Debate in Port Talbot today (11 July), the independent consultant said the test entails a check to see if the file “tells what the client really wants to achieve and how they want to live their life”.

Mr Percival said: “As we know, [Sir] Steve Webb wasn't really saying that people should be cashing in their pension pot and buy a Lamborghini, it was an extreme example.

“The reality is people now have the freedom to use pensions in the way that suits them, what they want to achieve and how they live their lives.”

The goal of the FCA was to know if the adviser report gives “the colour and detail about the clients’ objectives, and how the solution meets those objectives,” he added.

In March 2014, Sir Steve, then pensions minister, said it was people’s “choice” to do what they wanted with their pension, even if it meant buying a Lamborghini.

Mr Percival said financial advisers need to ensure they include colour and detail in the fact finding and suitability reports as a way of improving the standards of their files.

He said: “The regulator is looking to be able to see a real person when they look at a file.

“What they are trying to achieve, what their life would be like, what would they would like their life to look like. And they want to be able to see that reflected in the fact find and in the suitability report.”

FTAdviser reported today advisers are being urged to detail all steps of the advice process and the client history in their defined benefit (DB) transfer suitability reports, after a compliance expert found most files had a ‘black hole’ which could lead to complaints.

DB transfer files have been on the FCA's radar, which said in October that advice in more than half of the DB pension transfers it looked at, where the recommendation was to move the retirement pot, had been unsuitable or unclear.

From a total of 88 DB transfers analysed by the watchdog since October 2015, a mere 47 per cent were deemed suitable. The regulator found 17 per cent were unsuitable and in the remaining 36 per cent suitability was unclear.

The scrutiny of adviser files could increase further, as the regulator is looking at introducing a requirement for firms to provide a suitability report regardless of the outcome of advice.

maria.espadinha@ft.com

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