Fewer financial advisers may offer pension transfer advice after a clear warning from watchdogs that all their dealings with clients are under scrutiny.
Financial firms have seen a huge increase in the number of requests for help with pension transfers as several high-profile companies such as British Home Stores and Carillion have crashed.
But regulator the Financial Conduct Authority has written to every adviser holding permission to handle pension transfers because the reports issued by some are riddled with errors.
The FCA will look at pension advice based on a ‘commoditised approach’ because IFAs rely on generic assumptions rather than carrying out a detailed analysis of a client’s finances that may well be unsuitable.
Unsuitable advice to pension savers
It’s thought many IFAs will see pension transfer advice is not cost-effective and may leave the market.
FCA director of supervision, Megan Butler, said: “Later this year we will also be collecting data from all firms who hold the pension transfer permission with the intention of assessing practices across the entire market to build a national picture.
“We are aware that firms offering a commoditised approach to pension transfer advice are more likely to give unsuitable advice or fail to recommend a suitable destination fund.
“Commoditised business models do not adequately focus on the client need and personal circumstances and can result in a high incidence of unsuitable advice to transfer.
Cause for concern
“Our recent work in this area, which is summarised in the October 2017 alert, identified that in only 47% of files reviewed, transfer advice was suitable. This is a serious concern to us, hence our ongoing focus on this area.”
Pension transfers are a cause for concern for regulators because such large sums of money are involved.
The FCA has already stepped in as unregulated advisers swarmed around savers in the British Steel Pension Scheme. The BSPS scheme is closing and more than 120,000 members were given the option to transfer out, transfer to a new scheme or have their savings picked up by the government’s Pension Protection Fund.
The Pensions Advisory Service has also warned scammers are looking for prey on social networking sites.
