Yellow abstract of floor level.

Introducers & Inappropriate Influence

08 August 2016. Published by Matthew Watson, Partner

Last week must have been a busy one for those working at the FCA.

Not only did we have the recent announcement regarding likely forthcoming changes to the pension redress calculation methodology, but we were also presented with an alert highlighting the FCA's concerns about introducers having an "inappropriate influence" on how authorised firms carry out their business, particularly in pension transfer cases.


The recent alert identifies that the FCA has noticed a growing number of cases in which firms have failed to take adequate control over the advice they have provided to their customers. The alert notes that this issue is most prevalent in pension transfer cases.


The FCA has highlighted that there have been cases where firms are presented with pre-completed Fact Finds from introducers where it appears that there has been insufficient review of the introducers' assessment of a customer's financial circumstances. The FCA is clearly concerned that in some cases advisors never meet their ultimate client raising questions as to whether a sufficiently thorough analysis of a client's needs and circumstances is undertaken.


The alert also touches on the issue of what happens when advisors are met with insistent clients. The FCA refers to one of the "warning signs" as being when consumers approach advisors with a "pre-determined investment in mind". However, the update provides no tangible explanations as to what advisors should do in the circumstances where a client may have already made-up their mind.


A further issue of concern is that the FCA considers that some advisors are relying upon over-simplified advice processes which can also result in a pre-determined recommendation to the customer. Advisors face a practical balancing act between ensuring they meet their regulatory requirements whilst ensuring their business models' remain viable given the increasing burden of regulatory costs.


The FCA also raises the specific practical concern that some less scrupulous introducers may be using firms' Firm Reference Number (FRNs) to obtain customers' policy information which they would not have otherwise been provided. This is clearly unwarranted behaviour by the introducers; however whether advisor firms should be considered at fault is a separate issue.


The alert highlights the challenges advisors are facing to ensure they remain compliant with their regulatory requirements following the pension freedom changes. So how can a firm ensure that it meets its regulatory requirements when advising upon pension transfer cases? The FCA's alert has offered some limited advice on what advisors need to keep in mind when accepting business from introducers which is often a way advisors receive business to transfer monies into a SIPP.


The key points to take away from the alert are:


  1. To ensure that thorough due diligence is carried out of the introducers with whom advisors deal;
  2. To ensure that advisors properly understand products they recommend and take adequate due diligence steps as appropriate, and
  3. To ensure that advisors retain their independence in providing advice to the ultimate client

The FCA's alert regarding due diligence will come as no surprise to the vast majority of advisors who are well familiarised with their due diligence requirements. Rather, the concern remains that some less scrupulous advisors may perhaps seek to take advantage of the 'advice gap' by targeting those clients who are unprepared to incur the cost of instructing more reputable advisor firms.


Following the recent announcement and alert it is clear that pension transfer cases remain a topic of focus. We will have to wait and see whether this week is similarly busy for the FCA's news team!