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Leaked FSA report warns of crackdown over Sipp switching advice

The FSA is to launch a crackdown on advice around the transfer of personal pensions into Sipps or other PPs, including enforcement action and forcing wide reviews of past business, according to a leaked report seen by Money Marketing.

In the findings of its review of post-A-day pension switching advice, which are set to be published next Tuesday, the regulator says it found evidence of unsuitable recommendations being given in a “significant proportion of cases”.

The FSA began its thematic review in late 2007 after suspicions that unsuitable advice was being given when transferring clients into Sipps. It visited 30 adviser firms, reviewing 500 cases, and six providers.

The report flags up the £1.12m fine the regulator recently handed out to AWD Chase de Vere for unsuitable pension transfers among other failings, adding that further enforcement action against more adviser firms is in the pipeline.

The document says: “Firms with significant failings will be referred to enforcement for further investigation. The others must address the shortcomings we identified and highlighted to them.”

Sample firms identified as having short-comings will have to review each case the FSA deemed unsuitable and remedy the situation where necessary. Those with wider deficiencies will have to undertake a more significant review of past pension switching business and in some cases this will extend to other investment advice.

The FSA will write to several thousand adviser firms on Tuesday warning them they will be expected to consider approaches taken in past pension sales and take remedial action where necessary – including redressing clients who have been missold.

It will also warn them of “follow-up work” in quarter three next year, through which the regulator aims to “ensure firms have taken appropriate action”.

The main failings included switching pension products at an increased cost to the client without good reason, recommending funds that were not suitable for the client’s attitude to risk and personal circumstances, failing to put in place ongoing reviews where necessary and causing clients to lose out on benefits from ceding schemes without good reason.

The FSA also slams pension providers in the document, primarily for overstating potential returns on cash.

It says: “We were concerned that some providers seemed to us unlikely to be complying with the rules requiring lower projection rates to be used where the standard rates in the conduct of business sourcebook would overstate the investment potential and understate charges. We saw cases where the provider used the standard 5 per cent, 7 per cent and 9 per cent rates of return to project for cash.”

The regulator added that it would be “pursuing” its concern about the “potential mis-use of standard projection rates”.


Feverish regulation in a cold climate

With the FSA’s plans to make some firms hold three months of expenditure as capital adequacy and using an educated guess, may I suggest that the following groups will be unhappy.

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