Pension Transfers and Switches into SIPPs

In January 2013 the Regulator outlined concerns about firms failing to fully assess the advantages and disadvantages of the underlying investments held within SIPP wrappers. Following this initial alert the FCA has carried out further supervisory work which has continued to ‘identify serious and ongoing failings’.    

The findings can be read here

Briefly the supervisory work found:

  • ‘Very poor standards of advice’ i.e. lack of an assessment of customers overall financial position, needs, ATR and objectives;
  • Lack of understanding of non-mainstream propositions; 
  • Firms were not assessing the suitability of the underlying assets held within a SIPP;
  • Underlying assets that were not suitable for a customer meaning that the overall advice was unsuitable;
  • Firms were still restricting advice just to the SIPP wrapper and not the overall transaction (this was after the FCA had issued their alert in January last year);
  • Retail clients with very little investment experience were transferring traditional pension plans into non-mainstream, often unregulated, investments;
  • Some firms business models treated all clients as insistent or were seeking an execution-only service to avoid compliance requirements;
  • Some firms advised customers to take out SSAS in an attempt to avoid FCA scrutiny unaware that any advice to switch or transfer a pension is a regulated activity; 
  • Many firms professional Indemnity insurance was inadequate.

Note

Non-Mainstream Investments are:

Pooled investments or ‘funds’ characterised by unusual, speculative or complex assets, product structures, investment strategies and/or terms and features. They are units in unregulated collective investment schemes (UCIS); securities issued by certain special purpose vehicles (SPVs); units in qualified investor schemes (QIS); and traded life policy investments (TLPIs).

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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Our View

The Financial Conduct Authority has given the industry a clear warning about its expectations when recommending SIPPs and the underlying assets held within them.  Non-mainstream propositions are niche, risky products that are almost certainly inappropriate for ordinary retail investors; they are more likely to be suitable for promotion to professional or institutional investors, and to those retail customers who meet the criteria to be treated as sophisticated or high net worth investors. Customers have the right to expect an authorised firm to act in their best interests.

Action Required By You

  • Ensure that all advisers making recommendations in this area are fully aware of the regulatory rules and what is expected of them;
  • Ensure that all transfers into SIPP’s are categorised as high risk business and are subject to detailed pre-sale checking by someone with the right level of skills;
  • ATEB has been working with a number of firms following the FCA work as part of its S166 skilled person’s duties; if you are at all unsure seek guidance from your ATEB consultant.

About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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