The regulator is in the process of writing to around 1,600 companies at which it has concerns surrounding pension transfer advice – more than half of the 2,500 advice companies that operate in the DB market.
In a copy of the letter seen by FTAdviser, advisers have been given five working days to acknowledge receipt of the communication and provide the FCA with a copy of their professional indemnity insurance policy.
FTAdviser spoke with one adviser, who wished to remain anonymous, who said this was the first time the regulator had asked for physical proof of a policy.
The adviser said he has previously been required to input data about his policy into the FCA’s Gabriel online reporting system, but the regulator had never before asked to verify the information by providing proof of the cover, which he said was “surprising”.
The FCA did not respond to a request for comment on its decision to require advisers to provide a copy of their policies.
The advice companies have been given either one or two months to rectify any areas where the FCA has identified room for improvement, which include volume of transfers, insistent clients, unauthorised introducers and income from DB business.
Advisers will be expected to act on the recommendations before the deadline and demonstrate to the FCA they have done so, or write to the regulator explaining why they have failed to address the risks.
The watchdog is set to conduct a further round of assessments in 2020, and if it finds risks have not been mitigated further action is “likely”, according to the letter.
The letters are part of the FCA’s growing effort to crack down on poor advice in the pension sector, following a survey published in June in which it found too much of the advice on DB transfers it had seen was “still not of an acceptable standard”.
Following the survey of 3,015 companies between April 2015 and September 2018, the regulator voiced concern about the volumes of recommendations it had seen to transfer, with 69 per cent of clients having been recommended to transfer out of their scheme despite the watchdog’s firm stance that this was unlikely to be unsuitable for most clients.
The watchdog found the average transfer value was £352,303 – equivalent to a total value advised on of £82.8bn.
The data submitted to the survey shaped the letters now being sent to advisers, which are tailored to the individual recipient companies and also cover areas including conversion rate, transfers per pension transfer specialist and expensive solutions.
As part of its work in the sector the FCA has also proposed a ban on contingent charging for transfer advice and the introduction of ‘abridged’ advice, the main purpose of which is to assess clients’ suitability for a transfer at an earlier stage.
Speaking at a Pimfa summit in London earlier this month, Debbie Gupta, director of life insurance and financial advice at the FCA, said transfer advice would remain a supervision priority for the regulator.
The FCA recently said it was considering extending its review of the DB transfer market to include a “wider range” of firms next year, depending on the outcome of its 2019 assessments.
Alan Chan, director at IFS Wealth & Pensions, said: “I think it’s a good thing that the FCA is requesting to see the actual copy of the PI policy because there are many policies that now come with exclusions and it’s impossible to list all these and the various conditions on a Gabriel return.
“This will give the FCA a better cross-sectional view of firms involved in the DB market and the quality of their professional indemnity cover, which is ultimately designed to protect consumers in the event of a claim. This is just the beginning and we’ll see greater scrutiny from the FCA in this space.”
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