Pulling no punches, FCA director of supervision Megan Butler has told RP’s sister publication Professional Adviser that the regulator will be closing adviser firms if they are not “ready, willing and able” to improve their pension transfer processes.
Speaking to PA on Wednesday (19 June) the Financial Conduct Authority (FCA) director of supervision – investment, wholesale and specialist made it clear the regulator was extremely unimpressed with the standard of defined benefit (DB) transfer work – so much so that it would now be willing to use the full force of its regulatory powers, if necessary.
Visiting firms and revoking permissions is nothing new to the FCA -indeed it flexed its muscles during the British Steel scandal, when several firms that had advised steelworkers lost their pension transfer permissions. Following its latest data dive into the DB sector, however, Butler (pictured) told PA the regulator would systemically work through firms it felt were standing out for the wrong reasons – and it was ready to come down on them hard.
“If [firms] are ready, willing and able to improve their systems, and make redress to any clients they have for whom they have provided unsuitable advice, then we will work with them to make that happen,” she said. “But if they’re not ready, willing and able, we will be closing them down or stopping them offering pensions advice.
“Quite frankly, we have given every indication we can to this industry as to the standards these firms should be meeting, and we will check as many firms as we have to, to drive up standards of advice. At this point, [the advice] is not where it needs to be and this is an industry that needs to start listening to our messages on this.”
End of contingent charging?
Butler told PA the FCA had already visited “tens” of adviser firms in the wake of the data probe, and she expected that number to grow. One of the issues the FCA will be looking at is firms’ use of contingent charging.
“If we find that contingent charging is a contributor to harm in this area, then we are going to step in,” she continued. “We’re keeping it under review, but one of the areas we look at when we go and visit a firm is their charging model and whether they are managing any conflicts it might give rise to.”
Butler also said the regulator may target firms using unregulated introducers. She admitted the FCA had not expected to see such a comparatively small use of introducers in DB work – transfers involving unregulated introducers accounted for around 2% of the total number of transfers – and suggested it could be that a number of firms use them a lot, rather than this being an industry-wide matter.
The FCA’s data dive found that, of the 234,951 scheme members who received advice on whether to transfer, 69% were recommended to leave their DB scheme.
While Butler said that number “felt high”, she did caution against “extrapolating too directly” from the statistics presented in the data, as not all transfers given the green light would be deemed unsuitable.
“The triage system has the potential to give a different slant on some of this data,” she said. “To some extent, it may be that the people going for advice are already more likely to be the people whose particular experience and life expectations are such that it would be more suitable [to transfer].
“So, we must be very careful we don’t automatically assume these numbers would indicate all of these are unsuitable. That will not be the case.”
That said, Butler reasoned it was likely such high levels of transfer recommendations suggested “higher levels of unsuitable advice than we are comfortable with across this industry”.