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FSA orders firms to pay out £150m in redress for pension switching advice

The FSA has ordered a number of IFA firms to pay out more than £150m worth of redress to clients as part of its follow-up work on pension switching advice.

The FSA says its work has seen great improvement in the market with many firms reviewing past sales and procedures to deliver improved outcomes for customers.

But it says a number of firms are still giving high levels of unsuitable advice. The FSA has carried out further assessments of 22 firms that posed the highest risk of offering poor advice, following its initial thematic review in 2008. These include IFA firms and banks.

It found that of 251 files, 34 per cent involved unsuitable advice, in 31 per cent of cases it was unclear whether the advice was suitable and in 35 per cent of cases the advice was suitable.

Six firms have been referred to the FSA’s enforcement division as a result of work on pension switching. RSM Tenon Financial Services and Charles Palmer of Financial Ltd have already been hit with fines.

The FSA says it is currently in discussions with a number of firms on the format and extent of further remedial work so the number of cases to be reviewed and the redress payable is expected to increase.

It says its follow-up work highlighted additional concerns. Some advisers were found to be offering portfolio advice services, where the additional costs were not justified for a particular customer.

It says it also saw examples of tied advisers not investigating a customer’s existing pension arrangements.The FSA has vowed to follow upthese concerns.

Director of conduct risk Dan Waters (pictured) says more than 10 per cent of all pension switching advice given since April 2006 will be looked at again as part of the past business reviews firms are carrying out, adding that the FSA will “not hesitate” to take further action.

He says: “The actions we have taken to raise standards have driven significant change in the market and will see large sums of money returned to customers who received poor advice. In fact, more than 10 per cent of all pension switching advice since April 2006 will be looked at again.

“However, although many firms have changed the way they operate, we remain concerned that some continue to give poor advice. Ignorance is no defence and we will continue to focus on the high risk firms through intensive supervision. We will not hesitate to take tough action against any firms that fall below our standards.”

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Comments

There are 34 comments at the moment, we would love to hear your opinion too.

  1. I’m sure there are instances when the regulator’s opinion of what is ‘suitable’ does not concur with that of a professional adviser with many years experience, and a G60 qualification to boot. What do qualifications prove when an enquiring mind would normally preclude ‘risky’ business such as pension switching, NDF, Keydata and all the other baggage some firms are sitting on?

    Over the years I have seen ‘consumers’ forced back into pension schemes which shortly afterwards collapsed, all because the regulator believed that the adviser was wrong to transfer the funds to a personal arrangement, who compensates the badly ‘compensated’?

    The true test of what is suitable is time, a prime example would be a recent mortgage endowment maturity which produced more than was required to repay the loan, unfortunately for the adviser he had paid out >£2,000 in compensation when the ‘consumer’ complained in 2002, the end result is that the ‘consumer’ is in a position of betterment which is not only immoral but possibly a crime under the Fraud Act..

    I have seen Section 32 buyout policies pay out more than was required to meet the benefits provided by the ceding scheme, guess where the surplus went!

    As for tied advisers not investgating a customer’s existing arrangements this has been going on since well before ‘A’ day 1987, what has the regulator been doing all these years?

    I could go on and on but I’m losing the will to type…it is so frustrating to see such pathetic regulation, I don’t condone poor advice, however poor regulation is far more damaging for ‘consumers’.

    What is a ‘consumer?

  2. iestyn reynolds 9th April 2010 at 11:48 am

    IFA responses to this are noticeable by their absence! Maybe this indicates that not all IFA’s are as focused on whats best for their customers.
    “People in glass houses…” springs to mind.

  3. “Additional costs not justified for a particular customer.” What does this mean? I can’t justify the fact that I drive a Merc and not a Lada but I certainly prefer it. If the customer knows the cost and is prepared to pay for a service I do not understand the issue.

    The FSA needs to provide clarity as to the exact nature of their problem. Regulation by combative press release is not regulation at all. But then I suppose that sums up the FSA!

  4. “It says it also saw examples of tied advisers not investigating a customer’s existing pension arrangements.” Hmmmm ~ now that’s a really tricky one, because an assessment of any existing pension arrangement must conclude with some sort of advice as to whether it’s good, bad or indiferent. But tied advisers aren’t authorised to advise on any products other than those offered by their host company.

    The only way in which FSA can possibly deal with that one is to ban all tied advisers from giving advice on pension switching.

    Oh yes ~ perhaps Disparate Dan could refer us to the FSA’s guidance on this type of business that was in place and accessible to the adviser community prior to 2006.

  5. Incompetent Regulators Awards Team 9th April 2010 at 12:14 pm

    To Anon 11.48 am. I am an IFA and this is silly smal fry stuff which doesn’t need a stupid Leviathan to deal with it.

    A small IFA led professional body could deal with this with very few staff and costs. If we then consider all the c*ck ups the FSA staff has made and fined them individually they would all be personal bankrupt by now as well as the FSA (employer) being bankrupt. So stick you ‘stones and glass houses…….’ comments where they belong!

  6. It just goes to show that the public is best served by going to one of the larger banks for their advice

  7. People in glass houses…

    If you could write in a legible form Anonymous IFA’s could reply to your illegible tat.
    Who can take you serious when you dare not put your name?

  8. When the FSA talk about taking action against firms that fall below their standards they mean the standards they set for us IFAs. They don’t mean the standards that they set for their own competence, integrity or efficiency.

  9. The article was posted at 11.39. Anon posted at 11.48 saying the absence of comments…. I Dont you think it would be strange to see a multitude of responses within 9 minutes of the article being posted.

    I think the article is quite positive as the size of the redress is actually quite small so far. Also, if you look at the FSA reviews on these then it tends to be more minor issues.

    However, like Simon above, there is a bit of an assumption that everything should be in the cheapest. That should not be the case. If it was then why do M&S sell food or why do waitrose exist. If someone wants to pay for a service then there should not be a problem.

  10. ANONYMOUS post 11.48

    And your point is?

    If you are going to post at least have the balls to put your name to it… You should get a job at the FSA as you will fit in with all the other faceless tossers that work there.

    CHRIS NEIL

  11. I’m sure there are instances when the regulator’s opinion of what is ‘suitable’ does not concur with that of a professional adviser with many years experience, and a G60 qualification to boot. What do qualifications prove when an enquiring mind would normally preclude ‘risky’ business such as pension switching, NDF, Keydata and all the other baggage some firms are sitting on?

    Over the years I have seen ‘consumers’ forced back into pension schemes which shortly afterwards collapsed, all because the regulator believed that the adviser was wrong to transfer the funds to a personal arrangement, who compensates the badly ‘compensated’?

    The true test of what is suitable is time, a prime example would be a recent mortgage endowment maturity which produced more than was required to repay the loan, unfortunately for the adviser he had paid out >£2,000 in compensation when the ‘consumer’ complained in 2002, the end result is that the ‘consumer’ is in a position of betterment which is not only immoral but possibly a crime under the Fraud Act..

    I have seen S32 pension transfer policies pay out more than was required to meet the benefits provided by the ceding scheme, guess where the surplus went!

    As for tied advisers not investgating a customer’s existing arrangements this has been going on since well before ‘A’ day 1987, what has the regulator been doing all these years?

    I could go on and on but I’m losing the will to type…it is so frustrating to see such pathetic regulation, I don’t condone poor advice, however poor regulation is far more damaging for ‘consumers’.

  12. “IFA responses to this are noticeable by their absence! Maybe this indicates that not all IFA’s are as focused on whats best for their customers.
    “People in glass houses…” springs to mind.”

    OK, I’ll bite, Mr Anon.

    The article also mentioned ‘tied advisers’ so this is by no means solely an issue for IFAs. I would expect the tied advisers and Bancassurers are massively more culpable here.

    Remember, IFAs represent less than 1% of upheld complaints at the FOS – Banks represent around 60% of upheld complaints I believe.

  13. Paul Standerwick 9th April 2010 at 12:37 pm

    In response to anon @ 11.48.

    I received this article by email 7 mins before you posted your comment. I think I speak for most IFAs when I say we do not sit watching our inbox waiting for an article so we can waste more time explaining why the FSA are an incompetent mess and having to justify our charges so people like you can understand why we need to get paid for doing our job.

    Apart from this the article/press release is far to vague to make any specific comments on if you bother to read it properly.

    If you are going to make such inflammatory and ignorant comments why dont you have the guts to put your name by them?

  14. Re: Anon [11-48]

    Mmmm (member of the public are you??) … try throwing the ‘holier than thou’ at the larger group of villains in all this … ie the Banks (please refer to numerous MM blogs on the subject of Banks/pressure sales/inadequate advice/etc etc)

    I hope to God that the FSA do review ‘past sales and procedures to deliver improved outcomes for customers’ and so go to town on the Banks – ie guess the penalties/redress payments witll DWARF those of rogue IFAs!!
    (oh, and just look how many mis-sold endowments/PPI/etc landed at the Banks feet …)

    😉

  15. You must be joking 9th April 2010 at 12:50 pm

    Here we go again, the FSA concetrating (apparently) solely on COSTS!

    If a client has a pension policy which:

    a) doesn’t match their attitude to risk
    b) isn’t being reviewed
    c) doesn’t provide access to funds which have consistently demonstrated their ability to ourperform their peer group
    d) doesn’t offer the flexibility to change asset allocations / underlying funds as circumstances and objectives change

    but is CHEAP, that’s OK? Rubbish!

    Or are the FSA saying – “If you’re looking after the client you should make sure they retain their cheaper existing policies and not be renumerated for the work you carry out”?

    I wholeheartedly agree with Simon Webster – if a client is aware of the costs and the service being provided and feels that offers fair value – that’s the end of it!

    “pictured”, just because may look a little like the American comedian/actor Steve Martin, doesn’t mean you’re comments should also be commical.

    What next?

    Will the other FSA (Foods Standards Agency) be banning heinz beans because their more expensive than ASDAs own?

    Will we see the end of chateaubriand because burgers are cheaper?

    Will Chateau Petrus be forced to reduce prices to match those of Mateus Rose?

    In addition to Simon’s request for clarity, I’d like to see how the FSA has determined the advice is poor.

    Have all policies reached maturity?

    Is there a proven loss?

    Is this just a further case of the FSA wanting to be seen to be doing something?

  16. Mr Anon, maybe another reason why IFA responses “are noticeable by their absence” is because of the inordinate delay that the moderators take to publish a comment.

    Try looking over on Citiwire for more responses –

  17. @ Simon Webster

    Like it says on the Radio Times ads, “other listings magazines are available”… If you tell me that the Radio Times costs £1.25 and will tell me what’s on telly next week, you’re giving me information. But, to ADVISE me, you should tell me that buying Saturday’s Daily Mail is cheaper and achieves the same end.

    If I still want you to get me the the Radio Times, then I’m an insistent customer. If I only know about the Radio Times, I’m an ignorant one – and my adviser has let me down. Badly.

  18. Ewart Matthias 9th April 2010 at 1:49 pm

    Anonymous what are we supposed to say? The FSA is a law unto itself, we are guilty until proved innocent, there is no rule of law consideration, they are judging retrospectively on ‘guidleines’ they didn’t have at that time and the banks who are rated in the top 5 with the worst record of customer complaints have hitherto gotten away scot free. Is that enough for starters?
    Now take a look at the announcement today that a top London Barristers have cautioned against retospective actons on legislation and say that the FSA are safe.

  19. IFA responses noticeable by their absence??
    It’s Friday. IFA’s don’t do Fridays.
    Unless the commission is something REALLY special….

  20. It just goes to show that the public is best served by going to one of the larger banks for their advice

  21. I’m sure there are instances when the regulator’s opinion of what is ‘suitable’ does not concur with that of a professional adviser with many years experience, and a G60 qualification to boot. What do qualifications prove when an enquiring mind would normally preclude ‘risky’ business such as pension switching, NDF, Keydata and all the other baggage some firms are sitting on?

    Over the years I have seen ‘consumers’ forced back into pension schemes which shortly afterwards collapsed, all because the regulator believed that the adviser was wrong to transfer the funds to a personal arrangement, who compensates the badly ‘compensated’?

    The true test of what is suitable is time, a prime example would be a recent mortgage endowment maturity which produced more than was required to repay the loan, unfortunately for the adviser he had paid out >£2,000 in compensation when the ‘consumer’ complained in 2002, the end result is that the ‘consumer’ is in a position of betterment which is not only immoral but possibly a crime under the Fraud Act..

    I have seen S32 pension transfer policies pay out more than was required to meet the benefits provided by the ceding scheme, guess where the surplus went!

    As for tied advisers not investgating a customer’s existing arrangements this has been going on since well before ‘A’ day 1987, what has the regulator been doing all these years?

    I could go on and on but I’m losing the will to type…it is so frustrating to see such pathetic regulation, I don’t condone poor advice, however poor regulation is far more damaging for ‘consumers’.

  22. Mr 11.48am

    Email was only received at 11.42am

    Why so quick to pre judge everyone. Would not want you in my Jury!!

  23. Hargreaves Lansdown switch millions. They give advice vai their newsletter claiming the resulting sales are execution only. Have they been reviewed?

  24. Paul Standerwick 9th April 2010 at 2:37 pm

    In response to anon @ 11.48.

    I received this article by email 7 mins before you posted your comment. I think I speak for most IFAs when I say we do not sit watching our inbox waiting for an article so we can waste more time explaining why the FSA are an incompetent mess and having to justify our charges so people like you can understand why we need to get paid for doing our job.

    Apart from this the article/press release is far to vague to make any specific comments on if you bother to read it properly.

    If you are going to make such inflammatory and ignorant comments why dont you have the guts to put your name by them?

  25. ‘fall below our standards’?

    God that is low.

  26. None of the banks have been fined which would indicate that these customers would have been better served by one of the high street banks….

  27. Re: Anon [11-48]

    Mmmm (member of the public are you??) … try throwing the ‘holier than thou’ at the larger group of villains in all this … ie the Banks (please refer to numerous MM blogs on the subject of Banks/pressure sales/inadequate advice/etc etc)

    I hope to God that the FSA do review ‘past sales and procedures to deliver improved outcomes for customers’ and so go to town on the Banks – ie guess the penalties/redress payments witll DWARF those of rogue IFAs!!
    (oh, and just look how many mis-sold endowments/PPI/etc landed at the Banks feet …)

    😉

  28. Paul Standerwick 9th April 2010 at 4:08 pm

    In response to anon @ 11.48.

    I received this article by email 7 mins before you posted your comment. I think I speak for most IFAs when I say we do not sit watching our inbox waiting for an article so we can waste more time explaining why the FSA are an incompetent mess and having to justify our charges so people like you can understand why we need to get paid for doing our job.

    Apart from this the article/press release is far to vague to make any specific comments on if you bother to read it properly.

    If you are going to make such inflammatory and ignorant comments why dont you have the guts to put your name by them?

  29. Lindsay Lockett 9th April 2010 at 7:48 pm

    Maybe in we should all put a statement in our letter saying that whilst we would like to give our time for free, the need to pay for the costs of playing with the FSA’s current regulations, their potential (numerous) hindsight reviews and FSCS fees expecting for to pay for all know failures, requires a minimum fee per client of £(insert an appropriate value per firms).

  30. You must be joking 9th April 2010 at 11:00 pm

    For Andy

    Of the 22 firms identified in 2008, 12 are small firms and 10 are ‘relationship managed’ firms, including two banks.

    The FSA has so far only taken against – and named – two of them: RSM Tenon Financial Services, which was fined £700,000, and small IFA Financial Ltd, whose director, Charles Palmer, was slapped with a £49,000 fine.

    Today, the regulator says 11 of the firms have been told they must review past files assessed as “unsuitable or unclear” and pay redress as appropriate. It estimates this could lead to customer redress of £150m.

    Given that we now only have a few banks left in the UK, you will see from the above FSA statement that a greater proportion of these than IFAs are on the FSA’s “hitlist”…

    Toodles

  31. I am not noted for brown nosing our friends at Canary Towers. However, in this instance I suspect they are moving in the right direction.

    Last year I was “invited” to attend a FSA Pensions Roadshow. I had no idea what the intent- or content- would be but turned up dutifully and with a little apprehension.

    I had no need to worry. The day went as one might expect from the FSA – no lunch, lots of “Janet and John” and a rushour journey of 120 miles.

    There were some good bits though.

    I had never come across so many high quality IFAs in one place at one time. It was a credit to them that they did not simply tear apart the rather combative FSA staff and scatter them in pieces over the M1.

    La Politesse prevailed and any digging was either very quiet or very subtle, but it would not have been a fair fight.

    We were asked to work on a case study of a chap, 4years or so from retirement, with minimal pension accrued. An “IFA” had transferred a Standard Life S226 with a guaranteed bonus rate of 4% pa, plus a smaller PP, total value c.£35,000 to a “new style” scheme. The IFA had produced a very fancy asset allocation model which was nothing but polish for misplaced ego. His compliance file contained a transfer in quote based on a nil commission/100% cash fund.
    The commission was a high initial and 1% nominated trail. When an FSA staff member passed by it was commented that this scenario must have been invented after a liquid lunch he vehemently denied it. He told us it was a real case from a NETWORK memeber.

    Every IFA round that table was angered that such advice should have been used by the FSA as a model of advice. The bottom line is that this sort of advice is peddled all the time. It stinks and should be dealt with.

    Networks and nationals reap what you sow

  32. The banks shouldnt really be doing pension transfers. Indeed, most don’t because they know their staff are not experienced enough, don’t have the research and analysis software and dont have the remit to discuss the products and services of other providers.

    Anyone who thinks the banks offer better clearly doesnt know what they are talking about.

  33. Steven Farrall (Adviser Alliance) 19th April 2010 at 11:32 am

    All this from a ‘regulator’ that couldn’t even see that the banks were heading for a fall. It beggars belief that the FSA thinks it retains any credibility at all, especially in continuing to pass judgement on other’s so called failures when it itself failed so spectactularly. God save us all from these sanctimonius corporatists with their enduring and completely unjustified vanity in the superiority of their own rightness. The one thing you learn about the Great and Good is that when you get to meet them, they aren’t. And by association neither is their attendant bloated bureaucracy.

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