The Financial Conduct Authority (FCA) has uncovered further serious failings in Self Invested Personal Pension (SIPP) advice.
Firms that advise clients to invest their pension in unregulated products through SIPPS have been warned to have a robust and compliant advisory process or face the risk of enforcement action.Concerns were first raised in January 2013. Now the regulator has issued a further strongly worded alert after it identified “serious and ongoing” SIPP advice failings. The regulator has evidence that some advisers are continuing to encourage clients to switch traditional pension plans into SIPPs with a view to invest in unregulated, high risk and highly illiquid investments.
The FCA says that despite the initial alert some firms continue to operate a model where they purportedly restrict their advice to the merits of the SIPP wrapper, rather than providing holistic advice. “We think advising on the suitability of a pension transfer or switch cannot be reasonably done without considering both the customer’s existing pension arrangement and the underlying investments intended to be held within the SIPP,” it said.
Evidence has also emerged that some firms operating in this area had inadequate PII cover in place or had failed to disclose to their insurers the true nature of their business model.
In a bluntly worded warning the FCA said “If you continue to operate in this area, you must have a robust and compliant advisory process in place to ensure you meet our requirements, acting at all times honestly, professionally and in accordance with the best interests of the customer. We anticipate further firms, and their senior management, being referred to our enforcement division.”
“Advising on SIPP transfers is a high risk area of the market for financial advisers. The regulator expects to see exemplary standards of compliance, advice and risk control, and PII insurers will be wary of any additional risk to themselves due to a firm not meeting its regulator’s requirements,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “Anyone operating in this area should also aware that professional indemnity insurance will only respond to a claim for negligence if the insured has adequately disclosed its activities to its insurer. Claims made where the nature of the advice has not been disclosed, let alone deliberately hidden, are highly unlikely to be paid by insurers.”
“In our experience the overwhelming majority of financial advisers provide outstanding, holistic, professional advice to their clients. Unfortunately a few examples of bad practice and regulatory intervention can make it harder for all to secure PII.” added James Burgoyne.