Pension scammers are getting smarter, FCA warns advisers

Added 24th January 2017

The UK’s Financial Conduct Authority (FCA) has warned financial advisers, DFMs and pension scheme operators that scammers are becoming increasingly sophisticated in developing products to defeat due diligence efforts.

Pension scammers are getting smarter, FCA warns advisers

Scams have entered the next stage in their evolution, the regulator said.

First-generation scams offered unregulated physical assets, such as commercial property, for direct investment.

Second-generation scams obscured those underlying unregulated physical assets by creating a special purpose vehicles (SPV) to acquire them using funding raised by the issue of corporate bonds.

Third-generation scams use the services of a discretionary fund manager (DFM) to create an investment portfolio that does not require the direct input of the investor. The portfolio then invests in an SPV.

The driver for this evolution has been to obscure the nature of the ultimate underlying investment.

Listing assets

The regulator identified non-standard assets as particularly vulnerable to exploitation by third parties.

Unlike standard assets, they do not need to appear on a list, be capable of being accurately and fairly valued on an ongoing basis, or be readily realised within 30 days whenever required.  

Pension transfer warning

In a separate press release, also issued on Tuesday, the FCA signalled a renewed focus on domestic and international pension transfers.

The regulator said that it had become aware that some firms had been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested.

“We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments, or worse, being scammed.

“Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. So, it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether or not to proceed.”

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 

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