The financial regulator has admitted it should share examples of bad practice more than it currently does with advisers.
Debbie Gupta, director of life insurance and financial advice at the Financial Conduct Authority, told the Personal Finance Society’s annual conference last week (November 28) the watchdog was "privileged" to observe what bad practice looked like in the industry and admitted it should be passing more of this information on to firms.
Ms Gupta said: "With many thousands of smaller firms [in the market] there is a practical challenge in rooting out poor practice in a sector that is so broad and so diverse.
"In some ways you don’t want to necessarily change the shape of that sector because access to advice is an increasingly important part of how retail consumers will access financial services and products.
"From our point of view, yes we are doing lots of work on rooting out bad practice, but I also think one of the things the regulator is privileged to see, in a slightly roundabout way, is what bad practice looks like.
"As we do this we observe and see how that harm is manifested. And that’s something that we don’t share enough."
Ms Gupta said the FCA regularly saw firms failing to demonstrate they know clients well as part of retirement income advice.
She said: "They give the impression the firm is just doing what is best for the commercial interests of the firm.
"We are seeing evidence of it everyday where this is not playing out."
She added: "Because this sector is evolving so rapidly and because the impact of changes are still playing out in the market it’s our job to help share that because we believe there are many more, not just the regulator, who have a vested interest in rooting out bad practice."
The FCA has stepped up its scrutiny of one sector in particular this year, writing to around 1,600 defined benefit transfer advisers about risk in their advice.
The regulator’s crackdown was fuelled by a survey published in June which found too much of the advice in this area was "still not of an acceptable standard".
The letters were firm-specific and asked advisers to act on the FCA's recommendations within one to two months.
Ms Gupta also pointed to the regulator's temporary ban on the mass-marketing of mini-bonds, which was introduced earlier this week without consultation, as proof of its action in the advice market.
Ricky Chan, director at IFS Wealth & Pensions and member of the PFS financial planning practitioner panel, said sharing poor practice can help the industry, but only if good practice is shared also.
Mr Chan said: "Firms can then aspire to change and be better at delivering good financial advice.
"It’s not useful to simply point fingers at poor practice without a 'what good looks like' target in mind.