The FCA has issued a warning over ‘commoditised’ defined benefit pension transfers running the risk of unsuitable advice.
In a letter sent to advisers holding pension transfer permissions, the regulator reminds planners that a “key area” of its focus is on pension transfers, and that it will later this year be contacting all firms to collect data across the market, with any pension transfer advice potentially up for review.
It also expresses its concerns over volume processes for DB transfers.
The letter reads: “We are aware that firms offering a commoditised approach to pension transfer advice are more likely to give unsuitable advice or fail to recommend a suitable destination fund. By a commoditised approach, we mean an approach which does not entail a complete analysis of a client’s personal circumstances or needs and may include some generic assumptions in order to arrive at a personal recommendation.
“Commoditised business models do not adequately focus on the clients’ needs and personal circumstances and can result in a high incidence of unsuitable advice to transfer.”
The letter details five separate alerts or consultations the FCA has released on DB transfers since August 2016.
It also reminds advisers to be aware of its Conduct of Business Sourcebook rules around transfers, detailed in COBS 19.1, and its suitability rules more generally in COBS 9.
However, some advisers have expressed concern that talk of more reviews could further damage the reputation of the planning community.
An adviser tells Money Marketing: “Its tarring everyone with the same brush. If it is going to review the market, it should be those selling DB transfers rather than a block of professional advisers sitting back and, if clients come to them, decide on the right option.”
Speaking at the Personal Investment Management and Financial Advice Association conference in November last year, FCA supervision director Megan Butler said the root cause of a lot of the issues around DB transfers relates to the business model between the introducing firm and the specialist transfer firm.