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FCA issues warning over Sipp advice failures

The FCA has issued a further warning to advisers encouraging clients to invest their pension in unregulated products through Sipps.

In January last year, the regulator raised concerns some firms were advising on pension transfers to Sipps without assessing the advantages and disadvantages of the underlying investments to be held within the new arrangement.

Despite the publication of the initial warning, the FCA says further supervisory work has identified “serious and ongoing” Sipp advice failings.

In particular, the regulator says some advisers are continuing to operate a business model where they restrict their advice to the merits of the Sipp wrapper.

The FCA says: “We think advising on the suitability of a pension transfer or switch cannot be reasonably done without considering both the customer’s existing pension arrangement and the underlying investments intended to be held within the Sipp.

“In the cases we have seen, customers’ existing arrangements were invariably traditional pension plans invested in mainstream funds or final salary schemes, with the customer generally having no experience of non-mainstream propositions and many having very limited experience of standard investments.

“The new arrangements firms proposed were to transfer or switch the customers’ pension funds to a Sipp, with a view to investment in non-mainstream propositions, which were typically unregulated, high risk and highly illiquid investments.”

The regulator also found many advice firms had inadequate professional indemnity insurance cover or had failed to disclose to their insurers the nature of their business model.

In addition, the FCA says firms are attempting to avoid FCA scrutiny by focusing on SSAS pension switches. SSASs are currently policed by The Pensions Regulator.

“Advice to switch or transfer from pension arrangements is a regulated activity regardless of the funds’ destination,” the FCA says.

Last week the FCA took enforcement action against Andrew Rees and Timothy Hughes, partners at 1 Stop Financial Services, for suitability failings relating to Sipp advice.

The FCA says it expects to refer more firms and their senior management to its enforcement division in the coming months.


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There is one comment at the moment, we would love to hear your opinion too.

  1. Scary stuff….. but this has being going on for a long time!!!!!

    Client is ‘sold’ an unregulated investment (where the client effectively takes full responsibility for the ‘deal’) and then the regulated bit of work (advising on a SIPP) is arranged but a blind eye is turned to what the client is actually investing in.

    So effectively advice is given on the benign bit of the work (a tax wrapper which you’re already exposed to) and the bit that can really bite the client is non-advised.

    When will the wider public come to understand the importance of advice and the difference between being sold to and being advised.

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