RegulationOct 3 2017

FCA fires second warning shot at pension transfer firms

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FCA fires second warning shot at pension transfer firms

The Financial Conduct Authority has said some firms providing specialist advice on defined benefit transfers have still not taken its warnings on board.

It found that some of these firms made transfer recommendations without considering the receiving scheme or investments, or without knowing the introducing adviser’s intentions for the pension.

It follows work over the past two years when the FCA has been asking firms for detailed information about their DB transfer business.

Last year the FCA published an alert warning about the risks of advice firms accepting business from unauthorised introducers or lead generators.

At the time the regulator said it was “very concerned” about the influence introducers appear to have over the advice process.

This morning the FCA published an alert saying some advice firms had still not taken this on board when it came to DB transfers.

The FCA found that in some cases there was a lack of information sharing between the introducing firm and the specialist transfer firm which resulted in unsuitable advice where the specialist firm did not have enough information about the client’s objectives, needs or personal circumstances.

It also found firms where the adviser or transfer specialist made a recommendation without knowing where the transfer proceeds would ultimately be invested.

The FCA said: “We could not see how the specialist transfer firm could produce accurate comparisons between the DB scheme and the receiving scheme.

“The potential income in retirement in the ceding scheme will be affected by product and fund charges, and the likely returns.

“The client would not be able to make a fully informed decision without a comparison which took all of this into account.”

The FCA found at some firms the transfer analysis was routinely based on “default” schemes or funds in the knowledge these would not be the actual receiving schemes.

It said it was “disappointed” that while firms were generally aware of its warnings on this issue, not all of them had acted on it.

The FCA has recently taken action against a string of advice firms over their involvement in pension transfers.

In July Northamptonshire-based David Williams IFA was banned from carrying out pension transfers while Strategic Wealth UK was also told to stop this business until a review was completed.

A major adviser on defined benefit pension transfers, Intelligent Pensions, stopped carrying out the business earlier this year after discussions with the regulator.

Another issue the FCA found was that many specialist transfer firms had seen a significant growth in business buy had not made sure there were enough resources to deal with the increased number of referrals.

The FCA said: “Firms expressed to us the difficulty of processing cases within three months of the transfer offer.

“However, in several cases inadequate resources were a significant factor in this.”

There has been a large increase in demand for DB transfers driven by transfer values which have been soaring in the 10 months since the EU referendum thanks to plummeting gilt yields.

According to Xafinity's most recent figures, average transfer values now stand at around £237,000 for a pension worth £10,000 a year at age 65.

That's nearly £30,000 more than the same pension was worth on 1 June 2016, before the UK voted to leave the European Union.

damian.fantato@ft.com