The Financial Conduct Authority (FCA) has reportedly asked a number of firms to cease providing pension transfer advice in light of the British Steelworkers’ pension saga. Pembrokeshire Mortgage Centre, Bartholomew Hawkins and Active Wealth (UK) Limited are examples of the firms that have voluntarily ceased advising on non-standard pension investments.
The FCA’s intervention comes after over 2000 British Steelworkers were advised to transfer out of their Defined Benefit pension schemes, a move that could potentially jeopardise their retirement funds. We understand that some steelworkers were advised to invest in highly-speculative investments through a Self-Invested Personal Pension (SIPP).
Last year the FCA warned consumers to be cautious if considering transferring out of a Defined Benefit scheme. They have identified a number of risks associated with specialist firms providing advice on such transfers including lack of communication between introducers and specialist firms; lack of consideration given to the underlying investments; and failure to assess the suitability of the transfer for the individual client.
The influx in transfer requests comes after Tata Steel overhauled their pension structure, having seemingly been unable to maintain the British Steelworkers Pension Scheme (BSPS). Steelworkers had to make a decision regarding their pension by 22 December 2017, the options available being:
- Transferring to the Pension Protection Fund, a government-operated pension lifeboat
- Transferring to the new BPSP2
- Transferring into a personal pension, such as a SIPP
According to reports, some Independent Financial Advisers (IFAs) have seized the opportunity to “cash in” on the situation by aggressively marketing transfer-out services to steelworkers. However, a number of firms’ practices have caught the attention of the FCA.
The FCA has reportedly contacted 109 firms about the matter, with 66 of those firms being asked to provide further information. Upon the assessment of a selection of firms, the FCA concluded that clients were being given suitable transfer advice in a third of cases.
One of the FCA’s concerns is likely to be the volume of work being taken on by some advisory firms. Due to the large number steelworker clients, some IFAs may have reportedly taken on more work than they have the capacity to properly deal with. Whilst they may not necessarily be in breach of their regulatory requirements, an over-stacked caseload naturally leads to a compromise in quality.
Allegations that some advisers are prioritising their own financial gain over their clients’ best interests are also likely to have raised concerns with the FCA. IFAs can command a high fee for advising on pension transfers, and the FCA has expressed concern that this has compromised some firms’ ability to give proper, impartial advice.
It is understood that Active Wealth (UK) Limited is one such firm who have ceased providing pension transfer advice following an investigation by the FCA. Steelworkers were allegedly targeted by an unregulated introducer company called Celtic Wealth Management, who attended various British Steelworker events and advertised transfer out-services for a flat fee of £1,500. Celtic Wealth Management referred the clients to Active Wealth who, it is believed, advised on the transfer. We understand that clients were liable for Celtic Wealth’s £1,500 introducer fee as well as a commission to Active Wealth which was never disclosed to them.
Reports suggest that Active Wealth transferred their clients’ money into a SIPP with Momentum Pensions, which facilitated investments in risky, highly speculative investments such as Vega Algorithms. Such investments are not suitable except for sophisticated investors and thus should not have been promoted to ordinary retail clients.
Hidden fees, aggressive marketing and unsuitable advice are likely to have been the primary concerns that led to Active Wealth ceasing to provide pension transfer advice. Representatives of Active Wealth and Celtic Wealth Management failed to appear before MPs on the Work and Pensions Committee on 13 December 2017.
Whilst there are reports of IFAs offering free financial advice to steelworkers, it remains to be seen how the problems in the industry will be addressed in the long-term. It may be that only more stringent regulation by the FCA will suffice to protect pension investments.