11Nov

Megan Butler, Director of Supervision – Investment, Wholesale and Specialists at the Financial Conduct Authority (FCA), spoke on the subject of ‘the value of financial advice’ to the annual conference of the trade association The Personal Investment Management and Financial Advice Association (PIMFA) in November 2017.

Ms Butler began by speaking of “the growing importance of financial advice,” with particular reference to the increasing number of ways in which consumers can use their retirement savings. Speaking to her audience of advisers and wealth managers, she added:

“The simple fact is that without your guidance, without your expertise, an increasing number of people would find it difficult to make sense of their choices.”

The FCA director acknowledged that the regulator’s 2015 review of the suitability of advice given by advisory firms found that advice was suitable in 93.1% of cases. However, she went on to speak of the FCA’s particular concerns regarding advice on defined benefit (final salary) pension transfers. Here, Ms Butler said that in some cases, “the advice will be clearly very poor and ongoing, and the detriment very large for significant numbers of clients.” When we look specifically at transfer advice given by authorised firms, this was found to be suitable in only 47% of cases reviewed by the FCA, unsuitable in 17% of cases and unclear in 36%.

Ms Butler commented that there were three main failings displayed by firms giving pension transfer advice:

  • Not obtaining enough information about clients’ needs and personal circumstances
  • Not considering the client’s needs, as well as their objectives, when making a recommendation
  • Not assessing the risk clients were willing to take, and the risks they were able to take

Next, she commented that the FCA also had concerns over advice relating to high-risk investments. Ms Butler added that 152 firms had received requests from the FCA for details of the high-risk investments they had advised on.

There were several references in the speech to pension scams, and the audience was urged to “please report poor professional practice where you see it.” Ms Butler said that there had been a 5% annual increase in whistleblowing disclosures from financial advisers, but that “we still see comparatively fewer whistleblowers coming forward from the advice market than we do in other sectors.”

Next, Ms Butler described the Markets in Financial Instruments Directive Part II (MiFID II) as “obviously uppermost in a lot people’s minds at the moment.” This Directive comes into force on January 3 2018. Regarding MiFID II, she commented that:

  • For each product, firms will need to identify its ‘negative target market’, i.e. groups of consumers for whom the product is not suitable
  • The costs and disclosure requirements of the Directive are significantly more onerous than existing FCA rules.

There are, however, no plans for the FCA “to propose a standardised format for firms’ point-of-sale, or post-sale disclosures”

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.