The Financial Conduct Authority (FCA) has warned two advisers at the same firm that it proposes to fine them for operating a “seriously flawed advice model” for defined benefit (DB) transfers.
In a notice published on 6 March, the regulator said it had issued the warnings in September 2022 due to “reckless” conduct, demonstrating a “lack of integrity” that took place between October 2015 and July 2016.
The FCA reported that the unnamed individuals, who both have approved status, had allowed their firm to operate a flawed advice model for DB pension transfers in partnership with an unauthorised introducer firm.
The UK regulator added that the unnamed firm had also failed to obtain enough information from clients or to consider information on the onward investment scheme, to enable it to provide suitable pension-transfer advice.
High-risk, illiquid and unregulated investments
The watchdog also pointed out that the individuals had “failed to assess the obvious deficiencies of the pension-transfer model and the risks of detriment it posed to the firm’s clients.”
They also failed to ensure that their firm undertook the due diligence required, on introducers and investments that they promoted to clients.
The FCA said that neither of the individuals had responded to warning signs on the deficiencies and risks of the pension-transfer model.
One of the partners, in particular, had not addressed the risk that clients brought by the introducer would be encouraged to transfer out of their DB pension schemes, into high-risk, illiquid and unregulated investments unlikely to be suitable for them – “notwithstanding the obvious indications he received that the introducer had a material financial interest in promoting the investments,” the FCA added.
The regulator concluded that the conduct of the partners demonstrated “a failure to comply with regulatory requirements aimed at ensuring that customers received suitable advice and were treated fairly”.
The FCA said that a warning notice is not the final decision of the regulator. The individuals have the right to make representations to the Regulatory Decisions Committee (RDC) which will decide on the appropriate action and whether to issue a decision notice.
