From alert to supervisory action 

In January 2013, the FCA communicated its concerns about intermediary practices in relation to pension transfers and switches to SIPPs, and then followed up in April 2014 with a further formal alert on the subject, having continued to identify what it felt to be serious failings with adviser processes.  And, to be perfectly fair, there are failings out there - which is why, at ValidPath, we've taken some care to craft rigorous processes and principles which should govern the Adviser's conduct in relation to any kind of replacement business, and, specifically, why we now have the working party on Pension Transfer work.

The FCA had identified the following kinds of failing in relation to adviser practices:

  • Business models which tend to focus the advice on the new SIPP wrapper, without a thorough consideration of the existing arrangement and the new underlying investments (we would expect our advisers to be able to clearly justify any replacement contract, both in relation to terms, and also in relation to the superiority and suitability of the new investment model, vs the old one);
  • Switches from traditional or mainstream vehicles to non-mainstream vehicles which may contain exotic, unregulated, high risk or illiquid assets - such as overseas property, store pods or forestry - where the client clearly has little or no experience of such investments (we would expect our advisers to apply a rigorous risk-mapping process, to ensure that the underlying asset-allocation is suitable for the client);
  • Generally poor standards of advice, with inadequate assessment of the client's overall financial position, needs/objectives and attitude towards risk (we would expect any kind of replacement pension to take care with this kind of fundamental, supporting work);
  • Inadequate adviser understanding of non-mainstream propositions, and poor due-diligence processes (our view is that if the Adviser does lacks understanding of a replacement product, he can hardly expect the client to grasp the implications of his advice).
All of this is hardly revelatory in nature.  Whilst ValidPath are far from complacent about such matters, we have worked hard, over many years, with our Member Firms to minimise the likelihood of such failings.  

What is, however, a complete surprise is how the FCA have chosen to follow this matter up.  Bear in mind the chronology outlined above - initial alert in January 2013, followed by a more substantive alert in April 2014.  Then, out of the blue, an email from the relevant FCA supervisory team on the 10th March 2016, requiring an extremely thorough report back on one of our Member Firms, covering a two-year period, and giving ValidPath a deadline of nine working days to provide the return.  The return required by the FCA breaks the data requirement down into 5 subsets, comprising a total of 23 lines of data, and the FCA is quite specific about the format of the report that it requires.  Short time, lots of data, at perhaps the busiest time in the business calendar - hardly a combination of factors to fill one with joy.

In a subsequent exchange of emails, we are grateful to see the time constraint relaxed somewhat to fifteen working days, which seems a little more practical.  Thankfully, ValidPath have decent business-management systems, which will help facilitate a significant proportion of the FCA's requirements - but this does seem to form part of the more extended pattern of a heavier, more oppressive regime which, in practice, provides an ever-increasing distraction from the real business of actively raising standards, and equipping Advisers to deliver only the best outcomes.  The apparatus of regulation seems to have an inexhaustible appetite, and feeding it, both in direct financial terms and also in time costs, is more of a priority than ever.
Kevin Moss, 11/03/2016