Its set to be another busy year for regulatory scrutiny of advisers. On 21 January the FCA published its portfolio strategy for the sector; in addition to paying excessive fees or charges for products and services, it confirmed the following key ways in which consumers of financial advice may be harmed (and therefore areas where there will be increased supervisory focus over the next two years):
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Area of potential consumer harm
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FCA’s plans
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Action firms should take
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Receiving unsuitable advice for their needs and objectives.
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The FCA will be carrying out further work on the suitability of advice and associated disclosure, focussing on initial and ongoing advice on taking an income in retirement. The FCA has published a statement on this work – see here.
It will continue to focus on DB pension transfer advice. Finalised handbook rules should be published during Q1.
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Ensure advice provided is suitable, costs and charges are disclosed clearly, and you act in the best interests of your clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.
Start from the assumption that a pension transfer is not likely to be suitable. Ensure the risks associated with DB transfer business have been identified and are being managing (including any conflicts arising from advising charging structures).
Ensure factfinding is adequate and that you have adequate advisory, transfer specialist and compliance resources for your business.
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Falling victim to pension and investment scams.
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Focus its intelligence and supervisory activities on taking prompt and assertive action on the firms and individuals who facilitate or participate in scams.
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Be aware of the current risks and ensure advice processes and systems are robust enough to avoid them.
If you think a firm or an individual is involved in wrongdoing, report it to the FCA.
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Not receiving redress as a result of the non-payment of FOS awards and/or failing firms being unable to compensate consumers.
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Focus on whether financial advisers have adequate financial resources and PII, including the steps firms’ senior management have taken to maintain valid PII.
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Maintain valid PII for past and current business so that there is no break in cover. Your PII policy must not be subject to conditions or exclusions which unreasonably limit its cover. In such circumstances, you should stop providing advice on those business lines until you can secure appropriate cover.
If your policy has permissible exclusions you will need to hold additional capital.
If your do not have PII cover at all for certain types of business, you should not be advising on that business. Where relevant, you should also apply for the relevant permission to be removed.
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This article was written by Anna Davis.