Debbie Gupta, Director of Life Insurance and Financial Advice Supervision at the Financial Conduct Authority (FCA) spoke about ‘improving the suitability of financial advice’ when she spoke at the Money Marketing Interactive Conference in September 2019.

One of her key points was to stress that it is sometimes difficult, or impossible, to reverse the customer detriment caused by poor financial advice, so firms need to ensure they give appropriate advice in the first place.

Ms Gupta said that the FCA’s 2017 review showed, across the product range, that the recommendations given by financial advisers were suitable in 93% of cases. However, this figure reduces to 50% for pension transfer cases.

The FCA director said the advice being given on pension transfers was “simply not good enough” and added “we are still seeing the same mistakes”, suggesting that many firms had failed to improve their advice standards for this product since the 2017 review was conducted.

Using the British Steel Pension Scheme saga as an example, she commented that some of the affected individuals were advised to transfer out after just one 30-minute meeting with an adviser. Other former members of this scheme have said that they were not receiving ongoing advice even though they were paying a regular fee to their adviser in the expectation of receiving a service in return.

Echoing concerns raised by some of her FCA colleagues, Ms Gupta commented that many pension fact-finds simply state “client wants more flexibility” as a justification for recommending a transfer.

Criticising firms who record very little, she said that details of other pensions, the state pension due and the client’s expected income in retirement were some of the essential items that had not been recorded on fact-finds that the FCA has seen.

Although, at present, there is no obligation for advisers to produce audio recordings of their client meetings, she urged firms to consider this, and said that this is no longer an unrealistically expensive option.

The FCA director then said that advisers should have the confidence to challenge clients’ misconceptions, commenting that “it’s not your role just to follow client orders.”

Ms Gupta then listed seven ‘don’ts’ when giving advice:

  • Don’t provide templated objectives for the client to tickas this will result in fact-finds that are insufficiently personalised
  • Don’t use shortcuts and assumptions – here she mentioned that information the adviser obtains should be up to date
  • Don’t approach the case with a biased opinion as to what the final outcome might be, e.g. assuming from the outset that it will be appropriate to recommend a pension transfer
  • Don’t see fact-finding as being just a regulatory box-ticking exercise and remember that the fact-find needs to demonstrate that the adviser has gathered sufficient information to ‘know their client’ and has made a suitable recommendation
  • Don’t keep using the same fact-find year after year – instead firms should regularly review the fact-find and other documents and consider what changes may be needed
  • Don’t leave out information from the fact-find even if the adviser thinks they know their client very well
  • Don’t proceed with a recommendation if the client can’t or won’t provide all of the relevant information the adviser requires, as without important information it may be impossible to demonstrate suitability

Her next topic was attitude to risk. Many advisers class their clients as cautious, balanced or adventurous and then make recommendations in line with this risk profile. However, Ms Gupta said that the FCA does not want advisers to use this method when advising on pension transfers – instead either they have an attitude to risk that allows them to accept the risk of transfer, or they don’t.

Capacity for loss was also mentioned as something that needs to be considered, and the example given in the speech was a client who was heavily reliant on a product or investment to meet their income needs throughout retirement, and hence cannot afford to see the investment fall in value.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article