The FCA has found that less than 50% of pension transfer advice it reviewed in a sample survey was suitable and it is to undertake further work to assess the problems against a backdrop of a surging pension transfer market.

In an update to its current review of pension transfers, the FCA said it would look at whether consumers undertaking Defined Benefit (DB) pension transfers were at risk of “harm” from the advice they receive. Since starting its assessments, four firms have already chosen to stop providing transfer advice or limit their transfer activity.

In its work investigating scams, 32 firms have stopped providing advice since 2016.
Since October 2015, the FCA has reviewed 88 DB transfers where the recommendation was to transfer. From these, it found:

47% were suitable
17% were unsuitable
36% where it was unclear if the recommendation was suitable

The FCA also considered the suitability of the recommended product and fund and found that:

35% were suitable
24% were unsuitable
40% were unclear

The proportion of suitable cases was much lower than it found in the wider advisory market for pensions advice where the FCA’s Assessing Suitability Review found that 90% of pensions accumulation advice, and 91% of retirement income advice, was suitable.

The regulator says the number of consumers transferring from DB schemes to personal pensions has significantly grown over the past year and it will keep a close eye on how advisory firms have adapted their business models and processes in respond to these changes in the market.

It plans to continue to monitor the pension transfer market to assess firms who provide advice on DB transfers. There will be a further phase of supervisory assessments starting in the current business year. It also expects firms to take on board previous alerts and this latest update on advice and comply with the requirements.

The FCA says that it found some firms were not giving enough attention to customer outcomes when changing their business models in the wake of the pension reforms.

Over the last 2 years the FCA has asked for detailed information from 22 firms on their DB transfer business. It says that following analysis of this information it has reviewed a sample of client files for 13 firms and visited 12 firms.

The FCA said: “As a result of our assessments, four firms have chosen to stop advising on DB transfers. We have also continued our work on scams, particularly those that target consumers’ pensions. Since the start of 2016, 32 firms have chosen to stop providing advice or have decided to limit their pension transfer activity.”

The watchdog found that a large number of firms do not advise on DB transfers and prefer to introduce clients to specialist pension transfer firms. Some of these firms made transfer recommendations without considering a receiving scheme or investments, or knowing the introducing adviser’s intentions for investment.

“This opened up the risk of consumers’ pension savings ending up in inappropriate or scam investments,” says the FCA.

Common failures in pension transfer advice included:

Failing to obtain enough information about clients’ needs and personal circumstances.
Failing to consider the needs of the client alongside the client’s objectives when making a recommendation.
Not making an adequate assessment of the risk a client is willing and able to take in relation to their pension benefits.

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.