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14 May 2014

FCA Warns Firms Over SIPP Advice Failings

The Financial Conduct Authority (FCA) has issued a warning to advisers that encourage their clients to invest in self-invested personal pensions (SIPPs), without taking into consideration whether this is the most suitable option for them. The warning also addresses the practice of some advisers who instruct clients to invest in unregulated products through SIPPs.

The warning follows earlier action taken by the UK´s financial regulator in January last year, when the FCA raised concerns that clients received advice to transfer pension savings into SIPPs without advisers fully weighing the pros and cons of the move. Even though the FCA warned against the practice, it said that companies not giving comprehensive advice was still a serious issue.

Following the initial warning, FCA inspectors visited a number of firms with the aim of monitoring the way they operated and to make sure their business models met the regulator´s requirements. This subsequent supervisory work revealed that some advisers still operated a business model whereby their advice was restricted to recommending SIPPs as the only option. This is unreasonable, unless the adviser has fully evaluated the client´s existing pension plan and the specific investments intended to be held in the SIPP, the FCA said in its warning.

According to the FCA, a significant proportion of advice firms did not have the adequate professional indemnity insurance cover that corresponded to their business model. Moreover, firms were looking to avoid FCA scrutiny by concentrating on SSAS pension switches, which are under the jurisdiction of The Pensions Regulator.

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