Delegates at the Corporate Adviser summit were warned that the FCA could conduct a widespread pensions mis-selling review, unless there are significant improvements to the advice given on DB transfers.
This stark warning was given by consultant Rory Percival, a former FCA technical specialist.
He made clear that problems in the DB transfer market aren’t the result of a few ‘bad apples’ within the advisory sector. He said: “The problem isn’t just a few bad guys within the industry. The problems lie with normal decent firms who are trying to do the right thing for their clients, they are just not doing this well enough.”
Percival said that at the heart of this problem is a fundamental mis-alignment between what the FCA regards as ‘suitable’ advice on DB transfers, and what the industry sees as suitable.
There have now been four thematic reviews into the DB transfer market, Percival said, which have to date failed to show significant improvements in the suitability of advice given. According to the most recent supervisory findings, suitable advice was given in just under half of all cases reviewed by the FCA.
Percival said that the FCA had previously made it clear that it didn’t want a review, along the lines of the SIB review into pensions mis-selling back in the 1990s.
But he added: “This cannot be taken off the table. The FCA can’t stop doing work in this area until standards improve.” He points out that the regulator can’t continue doing thematic reviews, particularly if they show little improvement.
Percival added that the FCA’s consultation paper published earlier this year – which proposed to ban all types of contingent charging – highlighted how concerned the regulator was about poor advice on this issue.
He said: “I didn’t think the FCA would ban contingent charging. My interpretation of this announcement is that the regulator is really fed up with the sector, and the results it is getting, particularly the fact there has been no discernible improvements in market standards.”
Percival said it was now in the hands of the industry – and the advisor sector in particular – to provide the solution.
Percival also said he would like to see trustees of DB schemes focus more on the income provided in retirement, rather than large transfer values. These CTVs should be seen as “subsidiary information” in communications with member, he said. “Those that highlight these figures are potentially putting members in the wrong position to start with,” he added.