The Financial Conduct Authority deemed fewer than half (47%) of the defined benefit (DB) transfers it reviewed – where the recommendation was to transfer – to be suitable, its latest report has shown.
The regulator reviewed 88 DB transfers after October 2015 and decided 47% were suitable, 17% were unsuitable and the remaining third (36%) were inconclusive.
It also considered the suitability of the recommended product or fund the pension was transferred into and found a mere third (35%) were deemed suitable, while 24% were unsuitable. In about four in ten cases the FCA could not decide whether the product or fund was suitable or not.
The FCA said: “Firms must make sure that their personal recommendations are suitable for their clients. However, many firms had designed processes and procedures which resulted in transfers where the suitability of advice could not be established by the firm.”
It said the failings included:
- not obtaining enough information about clients’ needs and personal circumstances;
- not considering the needs of the client alongside their objectives when making a recommendation;
- and not making an adequate assessment of the risk a client is willing and able to take in relation to their pension benefits.
The watchdog added: “In some cases advisers had failed to make appropriate comparisons between the defined benefit scheme and the intended receiving scheme. Therefore advice was based on incorrect or inaccurate comparisons.”
The FCA and DB transfers
In June the FCA proposed to change the starting assumption on DB transfers from an outright negative to one where advisers will not have to start an analysis assuming the transfer will be unsuitable.
The regulator accepted responses to the proposals until mid-September and intends to publish the resulting final rules in early 2018.
However, soon after these proposals were published ex-FCA technical specialist turned-consultant Rory Percival argued the watchdog’s stance on transfer suitability had not in fact changed, explaining there had been mixed messages in the paper.
In June the FCA also confirmed it was looking into certain firms that had increased the volume of DB transfer business undertaken. It said this was not part of a separate review but was ongoing supervisory work. A number of firms agreed to suspend business while the reviews were carried out.
Earlier in January the regulator had warned advisers not to execute transfers without considering where the relocated assets will be invested, citing concerns consumers who received transfer advice were at risk of transferring into unsuitable investments or being scammed.