In a warning issued on its website on Tuesday, the regulator acknowledged that many UK-based IFAs increasingly rely on introducers to generate clients but warned that if customers are given unsuitable advice by an introducer, the authorised firm may be held responsible and subject to regulatory action.
It cautioned that offering simplified advice would not help firms evade liability.
Pension transfers
The FCA revaled that some IFA firms had “lost control over the final outcome of advice” on pension switches and transfers, which have increased in the wake of the pension freedoms introduced last April which now allow savers to have unrestricted access to their retirement savings.
Often these switches or transfers put people into unregulated products that were higher risk and less liquid which are not covered under the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (Fos) protection and therefore unsuitable for retail clients, said the regulator.
The regulator also warned that some of these investments may be “outright scams” while others are closely linked to or controlled by the introducers and tend to be badly run.
“We are very concerned at the increase we have seen in cases in which the introducer has an inappropriate influence on how the authorised firm carries out its business, in particular where the introducer influences the final investment choice.
“Many authorised firms we have visited do not have adequate input or control over the advice they are ultimately responsible for giving to customers. This has been particularly evident in relation to advice on switching and transfer/conversion of pension benefits.
“We have specific concerns where this advice involves movement of pension pots to unregulated, high risk, illiquid products, whether they are based in the UK or overseas,” warned the FCA.
Several areas of concern
The FCA said it had identified several areas of concern which include some introducers will use authorised firms’ firm reference numbers in obtaining consumer policy information, requesting the information is sent direct to them as an ‘administration office’.
Another example found that some introducers are presenting a referral to an authorised firm with a completed fact find, attitude to risk questionnaire, application/transfer forms along with a clear investment desire expressed by the customer.
In addition, some regulated firms are providing a simplified or limited advice process – often designed by the introducer to push their investment scheme – with even meeting the referred customer.
Regulatory responsibilities
The FCA is now urging advice firms to “maintain full and complete ownership of the advisory process” in line with regulation and to consider a number of questions, including whether the introducer directly benefits from the resulting investments.
“Introducers who introduce customers to you with a view to those customers purchasing investments may only be able to do so if it is for the provision of independent advice. ‘Independent’ in this context means that you are independent of the issuer of the investment,” it cautioned.
“It will be you and your firm against whom regulatory action will be taken, and there is also a risk that you may become involved in an illegal scheme.”
