IFAs warned against delegating pension advice to 'unregulated' third parties

The Financial Conduct Authority (FCA) said that it had come across some firms whose entire business models were based around delegating the provision of advice to unregulated firms. It has already begun enforcement action against some adviser firms and "associated individuals" for breaching its requirements in relation to advice, it said.

Financial regulation expert David Heffron of Pinsent Masons, the law firm behind Out-Law.com, said that the advice process for pension switching provided "important consumer protection".

"The risk of consumers switching their retirement savings to unsuitable assets must be taken seriously – unsuitable advice can lead to real consumer detriment," he said.

"The fact that the FCA is reminding adviser firms of the need to think carefully about relationships they have with third parties and not delegate their regulatory responsibilities is to be welcomed. The announcement makes it clear that the FCA will use enforcement action against firms who fail to consider, or who turn a blind eye to, their regulatory responsibilities," he said.

The FCA said that it had come across examples of retail customers who had received recommendations to transfer their mainstream personal pensions into self-invested personal pensions (SIPPs) based on underlying high risk assets that may have been unsuitable. These recommendations had come from unauthorised firms or individuals associated with those investments, who had contacted the customers while purporting to be the financial adviser firm.

The financial adviser firms under investigation had improperly delegated the provision of regulated advice to the third parties, and did not personally contact customers or review whether the recommendations were suitable, according to the FCA. Under FCA rules, the advisers remained responsible for the advice provided even after delegating it to the unauthorised third party.

"Firms need to be aware that, while it is attractive to develop new business models, improper delegation of authorised activities may carry significant risks of poor consumer outcomes," the FCA said in its statement.

"Delegating regulated advice to an unauthorised party will not mean that the firm can avoid liability or regulatory action for unsuitable advice. If approached in regard to this type of activity, we urge authorised firms to consider the significant implications that entering into this type of arrangement could have on their professional reputation and future livelihood," it said.

Advisers that were approached to enter into these sorts of arrangements by unregulated entities should contact the FCA, it said.