Despite investigating and warning of the improper transfer of pensions earlier this year, the regulatory body said some companies were continuing to give advice based entirely on the merits of the Self Invested Personal Pension wrapper.
The warning, issued yesterday, said pension transfers should not be advised without considering “the customer’s existing pension arrangement and the underlying investments intended to be held within the SIPP”.
It said advisers had unsuitably transferred financially inexperienced customers’ pensions into “unregulated, high risk and highly illiquid” products and provided a “very poor” quality of advice, that did not include an adequate assessment of customers’ overall financial position.
It also noted failings beyond the SIPP market such as inadequate professional indemnity insurance cover and a failure to disclose true business model nature to insurers.
The warning added that some companies were treating all customers as ‘insistent’ and seeking execution-only services and that some were advising customers to take out Small Self-Administered Schemes in an “attempt to avoid Financial Conduct Authority scrutiny”.
Advisers banned
Chief operations officer at Brooklands Pensions, Mark Sanderson, supported the FCA’s decision to allow the continuation of non-mainstream investments inside pension wrappers as opposed to prohibiting them.
“The FCA makes it clear that these types of investments are not for retail clients on the whole,” he said. “In most cases, the literature of the investment provider will state clearly that these funds are not for retail use and are for institutional investors only.
“However, these will still be promoted to advisers who are advising retail clients.
“This is not just a protection for members but is also designed to protect the adviser. We have seen an increased number of cases where advisers have been fined or censured for using unregulated investments in the portfolios of retail clients.”
He added that every compliant SIPP and QROPS provider should have a “robust” investment policy which takes into account the members’ risk classification.
“We would always encourage advisers to read this carefully along with any supporting literature from the investment provider.”
Earlier this month, the FCA imposed an industry ban on two financial advisers after they lost nearly two thousand customers’ money by convincing them to invest in high risk, unregulated funds through their SIPPs.
It said Andrew Rees and Timothy Hughes, partners at 1 Stop Financial Services, were banned from “performing any significant influence function in relation to any regulated activity” and fined £490,100 for advising customers to switch £112m worth of pensions.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: “By enabling customers to invest in unregulated and often high risk products without assessing suitability, these men exposed customers to the risk of losing their hard earned pension funds.
“This was then compounded by the partners’ failure to ensure that their customers fully understood these risks.”
