The Financial Conduct Authority (FCA) has issued a warning to a financial adviser about their defined benefit (DB) transfer advice.
In a notice issued on 10 February 2023, the regulator said it proposed to take action with regard to the conduct of a unnamed financial adviser who was an approved person at a “small” unnamed financial advice firm.
The regulator said it considered that the adviser had breached principle 2 of its statements of principle for approved persons, in the period between 16 March 2017 and 14 December 2017.
The adviser had provided DB transfer advice to customers, including members of the British Steel Pension Scheme. The FCA said that their approach to the advice given to DB transfer customers was considered “not compliant with the rules and principles governing this area of advice”.
The regulator reported that the adviser had based their recommendation on the “flawed assumption” that a transfer to meet a customer’s stated objectives was in the customer’s best interests, when these objectives were not viable or could have been achieved by other means.
It also found that the adviser “did not properly consider customers’ financial situations”, including the degree of reliance on the fund and whether they could bear the risk, when assessing whether it was suitable for them to transfer out of their DB pension scheme.
In addition, the FCA said the adviser had failed to properly assess whether the customer had the necessary experience and knowledge to understand the risks involved in the pension transfer recommended and had failed to give due consideration to this where they did not.
The adviser had also not undertaken adequate transfer analysis, comparing the benefits of the ceding and proposed schemes, according to the FCA. It also said the analysis contained errors which gave a misleading picture of how the schemes compared.
This meant the customer was not presented with accurate information. Where comparisons were accurate, the level of growth required did not match with the customer’s attitude to risk.
Furthermore, the adviser had issued documentation to clients which did not contain adequate information about the possible, personalised, disadvantages of transferring out of their DB pension scheme. The regulator said that warnings given would have appeared as “contradictory and therefore confusing to customers”.
The UK watchdog concluded that the failings identified meant that the advice provided did not comply with regulatory requirements and standards, creating a “significant risk” to customers.
The warning notice is not the FCA’s final decision and the adviser has the right to respond to the Regulatory Decisions Committee, which will decide on action to be taken and whether to issue a decision notice.