The Financial Conduct Authority has said it is "very concerned" that too many firms are not consistently providing suitable advice on pension transfers, after finding less than 50 per cent of the advice it had reviewed was suitable.
The regulator published the findings on its recent work on pension transfer advice today (December 6), claiming it was disappointed to find 48.1 per cent of advice was deemed suitable.
As part of its latest work, details of which were revealed today (6 December) the regulator had looked at 18 firms, which had given advice to 48,248 clients on their defined benefit pension schemes resulting in 24,919 actual pension transfers, since April 2015.
The regulator said whilst its results were based on targeted work and therefore not whole of market representative, it was particularly concerned firms were still failing to give "consistently suitable" advice despite previous feedback to the sector.
The FCA stated: "Our assessing suitability review in 2017 showed that around 90 per cent of advice on pensions and investments was suitable. It is unacceptable that pension transfer advice should persistently remain at such a low level in comparison to investment advice.
"We expect firms to take prompt action on our findings and to check that their business model and advice processes do not exhibit similar failings.
"Firms should review their risk management approach and controls to ensure that they are effective in mitigating potential harm to customers. It is important that firms act now to make any necessary changes."
The FCA said it had found instances of firms recommending transfers where the client’s needs and circumstances meant that retaining the defined benefit pension would have been in their best interests.
The City watchdog warned it expects advisers to start from the position that a pension transfer is not suitable, but conceded there may be occasions when it is in the client’s best interests to transfer.
The FCA said it was disappointed by the number of firms that had not taken effective action to address the issues identified, despite the fact they should have been aware of the regulator's concerns.
It added: "Firms failing to review or amend their business models in light of our concerns can expect serious consequences."
The FCA reported that following its assessments, two of the 18 firms voluntarily ceased providing pension transfer advice and a further two varied their business models and surrendered their pension transfer advice permissions.
The regulator recently requested data from all firms with permissions to advise on defined benefit pension transfers, which it anticipates will provide a "complete picture" of the whole of market since 2015.
The regulator said: "Any firm that is active in this market can expect to be involved in our work in 2019. We will not hesitate to use our investigatory powers where we identify evidence of serious misconduct which could have caused harm to consumers."
rachel.addison@ft.com
