In its post-A-Day review of pension-switching advice, which was rushed out last Friday after Moneymarketing.co.uk revealed its findings, the regulator found evidence of unsuitable advice being given in 16 per cent of the 500 cases it sampled.
It says a quarter of the 30 sample firms were found to be providing unsuitable advice in a third or more cases.
The FSA has written to 4,500 adviser firms warning them it will carry out follow-up work in the third quarter next year.
The review found in 79 per cent of cases where unsuitable advice was given, advisers switched pension products at additional cost to the client without good reason while 40 per cent of cases involved recommending investments which did not match the client’s risk attitude.
The FSA says that some advisers did not appear to appreciate the benefit of diversifying portfolios. JP Morgan pointed out in a briefing that the main fund selected in Standard Life’s Sipp last year was its select property fund.
The FSA recently fined AWD Chase de Vere £1.12m for unsuitable pension transfers. Enforcement action against other firms is in the pipeline.
Firms identified as having shortcomings will have to examine cases and provide compensation. Others will be forced to undertake a wider review of past pension switching business.
The regulator hit out at providers for overstating potential returns on cash, failing to monitor distribution and failing to review the quality of products.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Some insurance companies will have to take a good look at themselves and make sure they can write good volumes of compliant business.”