Alongside the release of its Customer Investments Data Review on January 18 2021, the Financial Conduct Authority also issued data on its interventions in the defined benefit (final salary) pension transfer market. The common theme of both reports is the prevention of consumer harm and the FCA says that the pension transfer market is “particularly susceptible to consumer harm.”
FCA action led to 130 firms exiting the defined benefit pension transfer market in 2020. In March 2020, 57% of consumers were being advised to transfer out of their occupational schemes, which was down from 69% in October 2018. The regulator also acknowledges that some firms operate triage services, where clients unlikely to benefit from a transfer are filtered out at an early stage of the advice process.
9% of the firms who responded to the FCA’s data request said that they facilitated insistent client requests and allowed clients to transfer out even though their adviser had recommended otherwise. Of the total number of clients advised not to transfer, 8% went ahead and transferred on an insistent basis.
5% of respondents said that they accepted some transfer business from unauthorised introducers.
9% of respondents did not have appropriate professional indemnity insurance in place, and for firms active in the pension transfer marketplace, this is a breach of FCA rules.
The number of firms active in this market has almost halved over the past five years.
Between October 2018 to March 2020, the average transfer value that firms advised on was £336,496 compared to £352,303 during the period April 2015 to September 2018. The data shows that the average transfer value where clients were advised to transfer was £405,178 compared to £267,814 for those advised not to transfer.
At the same time, and also as part of a drive to minimise harm to consumers, the FCA made an appeal to firms known as ‘Use It Or Lose It’. Any firm that has not used any of its regulatory permissions for 12 months and has no plans to do so in the future is requested to cancel their permission via the Connect system. Any firm which has not used some of its permissions for 12 months and no longer needs these is requested to complete a Variation of Permission via Connect. The FCA reminds firms that they are required to provide the regulator with an annual attestation that the information displayed on the Financial Services Register is accurate.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said:
“Incorrect or out of date permissions increase the risk of harm to consumers as they can mislead consumers about the level of protection offered or give credibility to unregulated activities. This is why we’re today calling on firms to review their permissions and ensure they reflect current business models. We will take action where we consider out of date permissions may cause harm to consumers. The message is clear, use it or lose it.”
For assistance with FCA compliance and authorisation contact our team of experts today.