Regulation

FCA issues warning to advisers over unsuitable advice

The FCA warned that some financial advisers are holding inadequate financial resources and/or professional indemnity insurance.

Rozi Jones
|
21st January 2020
FCA new
"Too much advice is still not of an acceptable standard."

The FCA has issued a warning to financial advice firms after finding "key areas of concern" in a number of areas.

The regulator says it has seen an increasing number of cases where the actions of firms are resulting in "significant harm to consumers".

The FCA's concerns primarily relate to unsuitable advice, failing firms being unable to compensate consumers, and firms charging excessive fees for products and services.

In a 'Dear CEO' letter issued today, Debbie Gupta, director of financial advice supervision, said there "will be increased focus on these areas as part of our wider supervision of firms over the next two years".

The letter warned firms to ensure the advice they provide is suitable, costs and charges are disclosed clearly, and advisers are acting in the best interests of clients.

Gupta added that "conflicts of interest must be identified and where they cannot be prevented, disclosed and managed".

In particular, the letter focused on defined benefit pension transfers, stating that "too much advice is still not of an acceptable standard".

The FCA raised concerns that firms are recommending large numbers of consumers transfer out of their DB pension schemes despite its stance that 'transfers are likely to be unsuitable for most clients'.

Gupta said the FCA will "continue to focus on this area until the quality of pension transfer advice reaches the same standard as the wider advice market".

Additionally, the FCA warned that some financial advisers are holding inadequate financial resources and/or professional indemnity insurance, which "increases the risk of firms being unable to put things right where they have caused harm to their clients".

Gupta said firms' inability to compensate consumers, and the transfer of these costs to other market participants via the FSCS levy, "is unfair and places an unnecessary burden on other firms".

The FCA is expected to increase its focus on whether financial advisers have adequate financial resources and PII.

In the letter, the FCA also highlighted the The Senior Managers and Certification Regime and said it expects firms to consider how the end of the EU Withdrawal period will affect them and their clients.

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