Investors are taking on too much risk because low interest rates are making them hunt for higher growth, warns the UK financial watchdog.
The Financial Conduct Authority has warned some investors were holding products that exposed them to more risk than they expected and which they could not afford.
The warning came in the FCA’s Sector Views 2020 report that scrutinises financial services issues that could impact consumers and undermine trust with advisers and providers.
The FCA regulates seven sectors including pensions, investments and consumer banking.
Most damage to the industry and consumer finances comes from small regulated firms and unregulated businesses, says Christopher Woolard, executive director of strategy and competition.
Retiring without enough cash
He explained the FCA’s biggest concern was too many people are retiring without enough money.
These retirement savers have not saved enough, failed to account for the financial loss of transferring out of a defined benefit pension or fallen prey to unscrupulous scammers and fraudsters.
“Key issues causing consumer harm include unsuitable advice, the sale of unsuitable products, poor value across the value chain and pension scams,” says the FCA.
“The retirement income market is a key area of our focus, particularly the suitability of both products and advice as the industry adapts to pension freedoms. From a wider perspective, the prospect that consumers may not get a retirement income that meets their needs or expectations remains the central challenge”
The worst time for pension savers is as they approach retirement, says the FCA.
Barrage of unsuitable advice
These savers must run a gauntlet of unsuitable advice encouraging them to transfer out of a defined benefit pension which is likely to see them lose guaranteed income, while at the same time employers are tempting them to leave their DB pension by waving large cheques encouraging them to go.
The same pension savers also face a barrage of unsuitable investment advice.
“Some of the highest risk products are offered by companies that are not regulated at all, while others are sold by firms that are only regulated for other activities,” the FCA says.
Besides worries over pensions and investments, the FCA study also highlights poor value from overdrafts and savings at banks, while motor and home insurers are criticised for unfair pricing and penalties to loyal customers who pay more for staying put.