FSA Fines London Firm for Poor Pension Switching Advice

April 16, 2010 (PLANSPONSOR.com) – Following a review of advice given by independent financial advisers to UK pension participants on switching from a personal pension plan to a self-invested personal pension plan, the Financial Services Authority has fined a London IFA for advice failures.

The FSA fined Robin Bradford (Life and Pension Consultants) Ltd (Robin Bradford) £24,500 for exposing customers to unacceptable levels of risk of receiving poor pension switching advice. An FSA press release said the firm is also reviewing the pension switching advice conducted during the period in question to see whether any redress is required.  

During its investigation, the FSA found that between April 6, 2006, and April 21, 2008, Robin Bradford exposed customers to the risk of receiving poor advice by failing to obtain and record relevant information from its customers to assess whether advice was suitable, and failing to include relevant information in suitability letters to help customers make an informed choice on the decision to switch. It also failed to adequately monitor the quality of its pension switching advice.  

More specifically, in a review of ten of the firm’s pension switching files, selected randomly, the FSA found, according to the press release:

  • 8 files did not contain a ‘fact find’ document;
  • 2 files did not have an assessment of the customer’s attitude to risk;
  • 2 files did not contain a suitability letter;
  • 3 files did not contain an explanation of the advantages and disadvantages of switching pension; and
  • 2 files were initially missing but both were subsequently found and of those files, one was considered as not being relevant to the investigation as no pension switch had taken place.

The FSA also found Robin Bradford put customers at risk when it issued a direct offer financial promotion on switching pensions that contained a recommendation and therefore constituted advice. In this way, the firm’s failure to communicate in a way that was clear, fair, and not misleading put customers at risk of receiving unsuitable advice, as advisers had not assessed the suitability of the recommendation for each customer, the regulator said.  

This is the third enforcement action following the FSA’s review of pension switching advice.  

Because the firm co-operated fully with the FSA and agreed to settle at an early stage of the investigation, it qualified for a 30% reduction in penalty from £35,000.

The FSA’s Review  

According to the Financial Services Authority there has been a substantial increase in pension business (for both Personal Pension Plans (PPPs) and Self Invested Personal Pension Plans (SIPPs)), particularly replacement business (pension switching). For this reason, in 2008 the FSA undertook a thematic review of the quality of pension switching advice because it was concerned that there was an increased risk of customers receiving unsuitable advice.   

The FSA said it visited 30 firms giving advice and assessed 500 files. Unsuitable advice was found in 16% of cases reviewed; however, this was unevenly spread across the firms reviewed. Twenty-five percent of the firms in its sample provided unsuitable advice in 33% or more of cases sampled.  

The failings found included:

  • the switch involved extra product costs without good reason;
  • the fund(s) recommended were not suitable for the customer’s attitude to risk;
  • the adviser failed to explain the need for, or put in place, ongoing reviews when they are necessary;
  • the switch involved loss of benefits from the ceding scheme without good reason;
  • firms operating tied advice models that prevent their advisers considering a customer’s existing pension arrangements when giving pension switching advice (which the FSA considers a breach of its rules); and
  • advisers recommending portfolio advice services with insufficient justification that the additional costs genuinely added value for customers.

According to the FSA, there are over 4,500 firms in the pension switching advice market, and in December 2008, the regulator wrote the firms responsible for the majority of pension switching advice setting out the findings of its review and requesting the firms consider whether they need to take action regarding their past and future sales.  

The FSA has taken disciplinary action against one firm and the director of another for poor conduct relating to pensions switching advice. Four other firms are currently under enforcement investigation and 25 more firms are undertaking past business reviews.

The FSA's report of its findings is here.