Speaking at Money Marketing Live in Manchester this week FSA head of investments for small firms Jonathan Fischel revealed the regulator is investigating the previous and current financial problems of a sample of 50 advisers.
The investigation , the results of which will be published early next year, also aims to guage the quality of the advice provided by the firms and whether their advice demonstrates any commission bias.
Fischel said the FSA gathered information from product providers which revealed that part of the sample had substantial commission clawback debts.
He said it was unclear whether there is any correlation between those with financial difficulties and commission bias but the project would aim to find this out. It would also, he said, build on previous mystery shopping exercises which revealed a worrying level of firms are still not treating their customers fairly.
Although the FSA insisted it is not part of an industry-wide probe, the revelation is certainly significant and will have particular resonance in the pensions industry. Few will forget FSA chairman Sir Callum’ McCarthy’s scathing attack on the pensions industry’s unsustainable business model, rife with high lapse rates as advisers, encouraged by high commission, move business from provider to provider.
Worldwide Financial Planning IFA Nick McBreen argued the problem of advisers building up big commission clawback debts clearly was clearly a result of churning.
And if the FSA does find a severe problem with commission clawback debts in this small sample of providers, few would bet against a wider investigation, particularly if the regulator notices a strong link between clawback debt and commission bias.
Predictably, the news did not go down well with one member of the audience who asked when the FSA would compensate IFAs for the time and money wasted responding to mystery shopping exercises. The comment inspired much thigh slapping and head nodding around the room.
SSAS provider Rowanmoor issued a warning this week that IFAs advising on income drawdown risk reducing client income by over 50 per cent. Rowanmoor director David Seaton said most people want to take too much income from their pension scheme in the early days. Some advisers are crucially failing to ensure their clients have a sustainable level of income for a full retirement, particularly after age 75.
Facts and Figures Financial Planners managing director Simon Webster said advisers need to monitor the performance of investments closely, but those relying on initial commission may find it more difficult to do so.
The warning is particularly timely, coming just over a week after the FSA publicly censured adviser GD Tancred Financial Services for failing to explain and document the risks of income withdrawal to customers with pensions pots of less than 100,000.
It seems the lady is not for turning. In response to a fresh criticism from over all sides over its treatment of Alternatively Secured Pensions the Treasury said it has always been perfectly clear on its position on forced annuitisation – indicating, as pensions guru Steve Bee has consistently argued, that Asps were never meant to be a genuine alternative to annuities.
A Treasury spokesman said the Government’s position on this issue was set out in the 2006 Budget [para 5.61] which stated: ” The longstanding position of successive Governments is that pension assets should be converted into a secure income in retirement by age 75. For most people an annuity or scheme pension is the best means by which they can do this.”
This position was reiterated in the White Paper “Security in retirement:
towards a new pensions system” published in May 2006 [page 58]. This said: “The Government considers that annuities are the most appropriate way to secure an income in retirement”.