They also set out the failings they have encountered whilst reviewing these requirements.
On 18 January 2013, the FCA outlined its concerns that firms were advising on pension transfers or switches to SIPPs without assessing the advantages and disadvantages for customers of the underlying investments to be held within the new pension arrangement.
They also recently published two final notices and took enforcement action against two partners in a firm, Andrew Rees and Timothy Hughes, who failed to comply with FCA rules in this area.
The regulator placed emphasis on authorised firms acting in the customers' best interests. In light of that, they believe pension transfers or switches to SIPPs intended to hold non-mainstream propositions are unlikely to be suitable options for the vast majority of retail customers. Firms operating in this market need to be particularly careful to ensure their advice is suitable.
This means that when a financial adviser recommends a SIPP knowing that the customer will transfer or switch from a current pension arrangement to release funds to invest through a SIPP, then the suitability of the underlying investment must form part of the advice given to the customer. If the underlying investment is not suitable for the customer, then the overall advice is not suitable.
If a firm does not fully understand the underlying investment proposition intended to be held within a SIPP, then it should not offer advice on the pension transfer or switch at all as it will not be able to assess suitability of the transaction as a whole.
The FCA noted:
"Our work in this area is ongoing and, if you continue to operate in this area, you must have a robust and compliant advisory process in place to ensure you meet our requirements, acting at all times honestly, professionally and in accordance with the best interests of the customer. We anticipate further firms, and their senior management, being referred to our Enforcement division."
