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Key take-aways from a recent FCA Sipp advice fine

Advisers must provide full and complete advice on Sipps to avoid falling foul of the FCA, says Simon Collins


The FCA has recently fined two directors for failings in the pension switching/transfer arena, all related to self-invested personal pensions. Is this the latest “product ban”?  Our view is that this is not a product ban per se but rather a clear indication that the FCA has lost patience with the industry in trying to avoid some of the regulatory requirements surrounding advice to consumers  and a shot across the industry’s bows about what goes into SIpps.

It is not a concern about the provision of advice regarding the potential benefits of Sipps but more a case of ensuring full and complete advice is provided without curtailing the advice to the Sipp wrapper element.

What is the FCA specifically concerned about?

Lack of robust and appropriate senior management oversight. The FCA has, during its supervisory work, found that senior managers within some firms are still failing in their responsibilities in respect of oversight of this particular advice area.  In doing so they are failing to ensure adequate, appropriate and specific management information is available to them to assess the quality of advice provided, the consumer experience and the revenue and adviser charges generated from transfers into Sipps.

Inadequate systems and controls

The lack of systems and controls very much links to the weaknesses in senior management oversight. Unless senior management within a firm recognises the need to review this aspect of regulated activity undertaken,  the required systems and controls will either be given lip service or not put in place.

Poor advisory processes and controls 

The primary concern of the FCA is that advisers are providing advice on the Sipp wrapper but failing to advise the consumer on the underlying investment assets. Often this is done in a very formulaic manner without appropriate and robust consideration of the full circumstances and retirement requirements of the consumer.  It is imperative that complete advice is provided, which includes the underlying assets. The FCA is concerned that too many consumers are provided with the benefits of the Sipp wrapper without a balanced view of the investments within the wrapper. This is definitely a case of inadequate advice.

Another aspect that concerns the FCA is the over-reliance on the use of what the FCA considers to be a “get out of advice key” – the insistent client. In our view, it is a rare occurrence when a consumer insists on a particular course of action unless they are highly experienced and could be viewed as a sophisticated client. So a process that drives up the number of insistent clients is viewed negatively by the FCA.

Unmanaged conflicts

The area is not new to anyone in the industry but in relation to Sipps it is a case of ensuring that any potential introducers or third parties do not create a conflict. If they do, management of this conflict is crucial. An example of this is where the adviser may have a conflict in respect of the underlying investments.

Poor communications with consumers

Underlying all the above is the provision of inadequate information to the customer, with a heavy bias on the benefits of the Sipp wrapper without the balanced view of the disadvantages of a transfer or switch or the nature of the underlying assets. While a Sipp may be advantageous for a client at some point in his or her retirement planning, is it right for him or her now?  Do the potential benefits of this option outweigh the potentially increased costs?  These are some of the key issues that are failing to be addressed in the headlong rush to move clients’ assets.

So, if your firm does provide retirement/pensions advice, it is imperative you take action to assess current processes and to establish whether you are at risk of FCA criticism in this regard.

Simon Collins is managing director of RGB Compliance 



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

  1. I think with many firms that are involved in pension advice this will be “not news”. Good decent firms do not wish to help retail clients invest in unsuitable investments.

    In my experience the firms offering advice on the “wrapper” are doing this precisely because they know it is wrong for retail clients to sell their retail funds and invest these in unregulated collective investment schemes which are rarely suitable for retail clients.

    We have been approached on numerous occasions by those selling the unregulated collective investment schemes asking if we would be prepared to provide the advice on the “wrapper”. These firms were not interested in any explanation of the rights and wrongs, just a yes or no. So we wouldn’t help the diamond firm stuff SIPPs full of the precious stones or the land bankers sell farmland at inflated prices, but others did.

    Unfortunately, it is always the good decent firms who are left to pick up the pieces when the claims fall on the FSCS.

    What’s worse is that these scams were always “out there” and many IFA firms were aware of them and had diligently sent details to the FSA or to journalists in the hope action would be taken, to no avail.

    With thousands of hard working decent professionals around to pick up the cost of the FSCS why bother chasing out these unscrupulous firms in advance.

    (rant over for today)

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