Financial Conduct Authority  

FCA readies for fresh crackdown on advisers

FCA readies for fresh crackdown on advisers

The City-watchdog is set to embark on a fresh crackdown on advisers after it found the actions of an increasing number of firms were causing consumer harm.

In a Dear CEO letter to financial advisers, published today (January 21), the Financial Conduct Authority said it was seeing an increasing number of cases where the actions of firms were resulting in “significant harm to consumers’ financial well-being”.

It identified four ways in which clients of financial advisers could be harmed: receiving unsuitable advice, falling victim to pension and investment scams, not receiving redress from the ombudsman service or firms being unable to compensate consumers, and paying excessive fees for products and services.

The regulator has therefore selected ‘preventing harm’ as a key priority for the financial adviser market, adding there would be “increased focus” on this in its ongoing supervision of advice firms over the next two years.

The FCA said it would be carrying out further work on the suitability of advice and associated disclosure, focusing on initial and ongoing advice to consumers.

The letter to advisers said: “You need to ensure the advice you provide is suitable, costs and charges are disclosed clearly, and you act in the best interests of your clients.

“Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.”

The City-watchdog delved further into defined benefit transfer advice, having previously found only 50 per cent of advice in the DB market was suitable.

In the letter advisers were urged once again to “start from the assumption that a pension transfer is not likely to be suitable” and to ensure they had identified and managed the risks associated with DB transfer business.

This included conflict of interest caused by charging structures for both advice on the transfer and ongoing investment advice.

The FCA also warned inadequate fact finding would create a “high risk” the advice would be unsuitable, urging advisers to gather all the necessary information and ensure they have the correct resources — advisory, transfer specialist and compliance — to transfer their client’s pension.

Adequate financial resources and professional indemnity insurance was also flagged as a concern in the letter.

The FCA said: “We are concerned some financial advisers are holding inadequate financial resources and/or PI insurance for the business activities they carry out.

“[This] increases the risk of firms being unable to put things right where they have caused harm to their clients. 

“The inability to compensate consumers, and the transfer of these costs to other market participants via the FSCS levy, is unfair and places an unnecessary burden on other firms.”

The regulator reiterated that firms are required to maintain valid PI insurance for past and current business so there is no break in cover, the policy must not be subject to conditions that limit its cover and those with permissible exclusions should hold additional funds to cover the deficit.