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Dear CEO/Director | Release Date: 21st January 2020

To read a shorter summary of this Dear CEO/Director letter, click here.

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) has issued this detailed letter as part of its strategy to supervise financial advisers throughout the UK. This document outlines the FCA’s approach, identifies key areas of concern, and provides guidance on the actions financial advisers should take to align with regulatory expectations and enhance consumer protection.

Importance of Financial Advisers in Consumer Financial Wellbeing

Financial advisers play a crucial role in assisting consumers with complex financial decisions. As consumers are increasingly tasked with managing their financial choices, the guidance provided by financial advisers is essential for ensuring these decisions are sound and beneficial. However, the FCA has identified several cases where the actions of financial advisers have led to significant harm to consumers’ financial wellbeing. Addressing these issues is therefore a priority to maintain the integrity and trust in the financial advising sector.

Key Risks and Areas of Concern

The FCA has pinpointed four primary risks where consumers face potential harm from financial advice:

  1. Unsuitable Advice: Consumers receiving advice that does not align with their financial needs and objectives.
  2. Pension and Investment Scams: Consumers falling victim to increasingly sophisticated scams.
  3. Non-payment of Redress: Consumers not receiving compensation due to advisers’ inability to pay FOS awards or because of insolvent firms.
  4. Excessive Fees or Charges: Consumers paying more than necessary for advice and financial products.

These issues form the central focus for the FCA’s supervisory activities over the next two years.

Supervisory Priorities and Expected Actions

Assessing Suitability of Advice and Disclosure

Following the 2017 Assessing Suitability Review, the FCA will conduct further work on the suitability of advice and associated disclosure (known as ‘Assessing Suitability Review 2’). This review will focus on initial and ongoing advice to consumers on taking an income in retirement, a market that has evolved significantly following pension freedom reforms.

Expected Actions:

Defined Benefit Pension Transfer Advice

Despite ongoing regulatory efforts, much pension transfer advice is still below acceptable standards. The FCA continues to be concerned that advisers often recommend consumers transfer out of defined benefit pension schemes, which generally is unsuitable for most clients.

Expected Actions:

Pensions and Investment Scams

Scammers pose a significant threat to consumer financial safety, employing increasingly sophisticated strategies to outwit due diligence processes.

Expected Actions:

Financial Resources and Professional Indemnity Insurance

Concerns have been raised about some financial advisers holding inadequate financial resources or professional indemnity insurance (PII), affecting their ability to compensate harmed clients.

Expected Actions:

Promotion of Speculative Mini-Bonds

Following the ban on the promotion of speculative mini-bonds to retail consumers, financial advisers need to reassess their promotional activities.

Expected Actions:

Conclusion and Next Steps

Financial advisers are encouraged to review this letter with their boards and take necessary actions to address the outlined concerns. The FCA expects firms to enhance their practices, ensuring they operate within the regulatory framework designed to protect consumers and maintain financial system integrity.

Key Takeaways:

This strategy emphasises the FCA’s commitment to ensuring that financial advisers uphold the highest standards of conduct and consumer protection.

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