The complexity of PTOO work is astonishing. The whole pension industry has become a chaotic for many IFAs as even bog standard EPPs and most pre 1988 personal pensions require special licences. Most S32s are considered occupational now, and immediately vesting no longer allows firms to advise without special licences. More advanced products like occupational pension transfers also require individual PTOO sign off, and even more complex licences. Meanwhile the stock market soars and the public trust in guaranteed zombie pensions like BHS erodes daily. While execution only is thriving in the sub £30k market, most IFAs are not allowed to help even in this market.

So last week the FCA published a press release explaining what it expects from firms advising on pension transfers – mainly related to the introducer market combined with the underlying funds that some pension funds are going in for.

FCA Pension Transfer Expectations

Some firms have been advising on pension transfers and switches without considering the assets in which their clients' funds will be invested. This happens because advisers refer the business to other firms who do have the relevant suite of licences. There are barely two IFAs in the UK today who have identical licences – a crazy situation that only increases the risk of misselling. But there we are today… The FCA is rightly worried that consumers are transferring into unsuitable investments. These transactions are uniquely painful to PII insurers because they stand alone as being irreversible and the final analysis of good or bad transfer only becomes apparent years later.

So the FCA have made it clear that firms who do receive this work from other advisers will need to understand and to consider the assets in which the client's funds will be invested, as well as considering the specific receiving scheme.

“It is the responsibility of the firm advising on the transfer to take the characteristics of these assets into account.”

The FCA then goes on to say what a firm must do when providing a transfer analysis.

In particular, under rule 19.1.2R(1) of the Conduct of Business sourcebook (COBS) they say advisers should explain the rates of return should be illustrated on rates of return that take into account the likely expected returns of the assets in which the client's funds will be invested. Firms are referred to guidance at COBS 19.1.2 and 19.1.6 to 19.1.8.

The FCA says that a firm advising on a pension transfer should not undertake a comparison using generic assumptions for receiving schemes. So the IFA must know the underlying funds that will be used post transfer, before starting the analysis.

Of course we are still considering a moment in time decision, so it remains open years later to a complainer or competitor IFA being a “clever dick with hindsight.“ The FCA also is worried about pension transfers to overseas schemes. Something similar should apply, they say. This gets quite difficult in practice, as clients in remote offshore work locations are vulnerable to poor quality IFAs working offshore outwith any regulation at all. So you can hardly argue with the FCAs point that you need a close relationship with the offshore adviser.

FCA also outlined concerns where authorised advisers get biz from introducers

FCA article. The FCA updated its webpage on introducers last week – January 24th. Again, no surprises for guessing that they don’t like introducer influencing the final investment choice. Nor do IFAs. The FCA concern comes from various dodgy funds that are out there – and well known – who use weak IFAs to market their own products. Obviously they cannot sell them themselves, because the FCA won’t give them a licence, so they prey on weak IFAs to do their dirty work for them. This concern is legit – but it has collateral damage for genuine IFAs who receive introductions from well meaning offshore IFAs who are helping their stranded expats to access their pension pots in order to retain the capital.

Authorised firms must, at all times, maintain full and complete ownership of the advisory process between their firm and the customer. But here is the cold warning:

“If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this, and subject to regulatory action.”

How exactly this stands legally I don’t know, but I feel sure that some advisers are about to find out.

Finally the FCA published pension-scheme-operators-risk-smarter-scams warning pension scheme operators that they are at risk from smarter scams.

Question: When is a SIPP not self invested?

Answer: When the FCA are involved. In these cases, the IFA is liable for what the client invests in.

Although the warning is aimed primarily at pension scheme operators, the FCA advises that it will also be of interest to IFAs

The FCA has seen scams evolve to become increasingly sophisticated in developing products designed to defeat firms' due diligence efforts. As a result, it wants firms to be aware of the current threats, and encourages them to review the effectiveness of their systems and controls.

Risk assessment on new products

The FCA's rules state that a standard asset must appear on the list of standard assets, and "must be capable of being accurately and fairly valued on an ongoing basis and readily realisable within 30 days, whenever required." A failure to understand which assets are non-standard may leave a firm vulnerable to exploitation by third parties. Because of this, the FCA states that IFAs must have the due diligence. The FCA explains that it has "long advocated" a financial crime risk assessment for newly introduced investment products as good practice.