Government-funded Consumer Focus published its scathing pension-switching report on IFAs despite FSA concerns about the size of the sample used to back up its findings.
In July, Consumer Focus produced a report, Is it Advisable?, which suggested IFAs and trail commission were responsible for an unacceptable level of pension churning which led clients into high-charging funds. It warned the problem will continue after the RDR. The research was picked up widely by the consumer media, resulting in a large amount of negative coverage about IFAs.
Money Marketing attacked the research for a lack of evidence to back up its claims, which were based on just 31 examples of client correspondence from two IFA networks over a 10-year period.
An email from the FSA to Consumer Focus dated March 7, obtained by Money Marketing through a Freedom of Information request, reveals concerns about the sample size used by Consumer Focus in a draft of the report, which at the time stood at 25. The FSA said it was “very small” and “not necessarily representative of the market”.
The final report also made reference to the FSA’s investigations into Sipp transfers from 2008 and 2010 and implied the findings were representative of the IFA marketplace. The report claimed: “It is far from clear that the situation has improved.”
After the publication of the report, FSA director of policy Sheila Nicoll wrote to Consumer Focus chairman Christine Farnish stating the findings of the 2010 review “should not be extrapolated” to represent the wider market, according to documents obtained by Money Marketing.
The report cost Consumer Focus £68,000 to produce, according to a further FoI request.
Consumer Focus chief economist Prashant Vaze says: “We have always been clear we looked at a small amount of correspondence from IFAs. We would have liked to review more but we had a poor response to our statutory request for data from advisers, insurance companies and the trade association. Although both our research with IFAs and the FSA’s reviews were based on small sample sizes and are not definitively representative of the whole market, we believe three snapshots showing similar problems warrant a bigger-picture look at the issue by the FSA.”
Informed Choice managing director Martin Bamford says: “It was extremely irresponsible for Consumer Focus to form conclusions based on shaky evidence. The negative headlines generated about pensions and pension advice by reports like this can have a really damaging impact for individuals who might, as a result, choose not to save.”