We carried out a follow-up review into the quality of advice given to customers to switch into a personal pension or a self invested personal pension (SIPP). The purpose of the follow-up work was to assess the extent that firms had improved their practices since our last publication.

The full review (which also included large firms) can be found at quality of advice on pension switching.

We issued a questionnaire to approximately 250 financial advisers, and conducted 12 follow-up visits. Overall results indicate that all respondents to the questionnaire have conducted a review of their pension switching advice processes, most were expecting to conduct ongoing reviews of new business and more than half had received compliance support.

Twelve of the firms we visited they committed to further work on procedures and/or reviews of past sales; two have been required to conduct a past business review under S166 and four firms are conducting a past business review, with the assistance of their compliance consultant.

Findings

Generally advice standards fell below the level we expect. Within the smaller firms population 35% of the files reviewed were rated unsuitable and 46% unclear. Whilst this result is concerning we did focus our work on firms that posed the highest risk. Many of the same issues that we discovered in our initial report appeared again and we will focus on these as part of our ongoing supervisory work, to ensure that standards are raised.

We expect all firms to have considered our original findings and review their advice procedures for pension switching business. This includes sampling past sales. If this review identifies issues, the firm should conduct a larger sample to identify any trends i.e. if the issues are widespread or specific to an adviser. Where advice is deemed unsuitable, we expect firms to take action to remedy the situation for the customer, including offering redress where appropriate. We issued our suitability assessment template and guidance to help firms with this process.

The majority of firms had put in place processes to enable them to review their files. In many cases this included support from their compliance consultant. We also identified a number of firms that had used our suitability assessment template, but when we reviewed their work we had concerns on the standard of the review, as it fell below our expectations. Our suitability assessment template is designed to help firms to assist in clearly rating advice as suitable/unsuitable/unclear. Where an unclear rating is determined, we expect the firm to take action to resolve any deficiencies and then to re-rate the file. The overall outcome should be suitable or unsuitable. In some cases, firms appear to have accepted an unclear rating as not unsuitable and therefore did not undertake the remedial action necessary. This is not acceptable.

In some instances we observed firms rating files as suitable when this outcome could not have been deduced solely from the information in the file. Firms must rate the file based on the information in the file only.

Overall, we are pleased that firms have engaged in reviewing their processes. In many cases firms had also extended the review beyond pension switching advice. We would consider this best practice.

Ongoing supervision

We are committed to improving outcomes for consumers and will continue to focus on firms who cannot demonstrate the necessary standards of advice. We will do this by reviewing client files. If these do not support the advice, we will consider further action against firms to meet our objective. Through our more intensive supervision regime, we will continue to focus on those firms that pose the highest risk of providing poor advice and we will carry out further supervisory work on wider advice issues including those arising in the lead up to implementation of the Retail Distribution Review.

Further Information

Pension switching suitability assessment template

One-minute guide - pension switching