The provision of later life planning advice has again come under scrutiny following a recent decision by the Financial Conduct Authority.
David Watters was fined £75,000 for failing to exercise due care, skill and diligence in his role as compliance oversight officer, both at FGS McClure Watters (FGS) and Lanyon Astor Buller Ltd (LAB).
An investigation found that Watters had not taken reasonable steps to ensure that a certain process was in place at either of the firms. Specifically, this was the provision of advice relating to Enhanced Transfer Value (ETV) pension transfer exercises. He had failed to check that the process was adequate or met regulatory standards. As a result, there was a serious risk of advice being unsuitable for clients, particularly in relation to the benefits of transferring a pension to a defined contribution scheme from a defined benefit scheme. This would form part of an ETV pension transfer exercise.
An estimated 500 customers that received advice from either of the firms went ahead with this kind of transferral, with a cumulative value amounting to £12.7 million. Where pensions are moved from defined benefit schemes to defined contribution schemes, guaranteed benefits are lost; these may have been lost unnecessarily in certain cases.
According to the FCA, ‘Mr Watters failed to give sufficient consideration to whether the advice process was compliant; he did not take reasonable steps to gain a sufficient understanding of the relevant regulatory requirements; and did not obtain an appropriate third party review of the processes to ensure compliance. Mr Watters also failed to take reasonable steps to ensure that advisers were properly monitored to reduce the risk of unsuitable ETV pension transfer advice being given to customers.’
As ETV exercises encourage transferral of pensions, it’s essential that advice received is both appropriate for the consumer and considers whether the transfer is indeed in their best interests.
Commenting on the issuing of the fine was Mark Steward. The Executive Director of Enforcement and Market Oversight stated: “It was Mr Watters’ responsibility to take reasonable steps to put in place a compliant advice process. His failure to do this placed customers at risk of needlessly losing valuable benefits for their retirement.”
Earlier this year, the FCA issued a warning on pension transfer advice after discovering that some firms had not properly considered the nature of their client’s investment. It drew attention to the responsibility of firms in possessing an advisory role, expressing a need for advisors to tailor their advice, rather than basing their recommendations on a hypothetical case.
In June, the FCA published new proposals on pension transfer advice, relating to transfers where the consumer has safeguarded benefits. The aim of the amendments is to ensure that comprehensive advice is received by all consumers who request it.
