On 18 May 2017, the FCA published a report setting out the findings from its review into the market for pensions and investment advice.
The review was launched in April 2016 and its purpose was to assess a statistically robust sample of advice files that allowed the FCA to draw conclusions on the suitability of advice and quality of disclosure in the sector as a whole.
The review assessed 1,142 individual pieces of advice, given by 656 firms, against the suitability and disclosure rules in the Conduct of Business sourcebook (COBS).
The FCA found the overall results positive, with the sector providing suitable advice for 93.1% of cases and acceptable disclosure in 52.9% of cases. However, it identified concerns relating to matters including the following:
- Risk profiling. Some firms did not consider or mitigate the limitations of the risk profiling tool that they used, or the recommended solution did not match the risk that the customer was willing or able to take.
- Replacement business. Some firms recommended that customers give up valuable guarantees without good reason, or where the additional costs appeared to outweigh the benefits of the recommended solution.
- Initial disclosure. The FCA found that the main area where there is unacceptable disclosure is about initial disclosure. In particular, firms disclosed an hourly charging structure but did not provide an approximation of how long each service was likely to take. Also, firms used charging structures with a wide range.
Firms are expected to consider the results, particularly the areas where the FCA has flagged continuing concern, and consider whether there are any areas where they can improve.
The FCA intends to provide more information on its review over the course of 2017 and into 2018 and will share more detail on its findings, including examples of good and poor practice. It will focus on the areas where there is scope for improvement. These include disclosure, replacement business and risk profiling and mapping to investment solutions.
The FCA also intends to repeat its review in 2019, based on advice delivered in 2018. This will measure how the results have changed since 2015 and it will also allow;
- the FCA to assess how firms have implemented the requirements introduced for financial advisers by the MiFID II Directive (2014/65/EU), the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) and
- the Insurance Distribution Directive ((EU) 2016/97) (IDD).
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