The Financial Conduct Authority (FCA) yesterday published its thematic review into bulk transfers from defined benefit schemes to defined contribution schemes and found widespread inadequacies in the advice given to members, potentially causing them to lose out on retirement income. Based on a sample of 300 case files from transfers that took place between 2008 and 2012, the review focused on the suitability of the products advised and the quality of disclosure.

The review showed inconsistencies in advice approaches and in the quality of advice provided by different financial advisers. Some of the failings included using generic templates where advice did not reflect individual circumstances or take into account the client’s requirements, not establishing adequately the level of risk a member is willing and able to take and fund recommendations which did not match the assessed risk profile of the client.

On the same day the FCA director of supervision, Clive Adamson, wrote a letter to the CEOs of all SIPP firms warning them of the widespread failings that have been uncovered in its third thematic review of SIPP operators, and reminded them to make sure they operate within FCA rules. The letter focussed on SIPP firms’ due diligence on non-standard investments and meeting their capital adequacy requirements, two areas that have been appearing sharply on the FCA’s radar of late and will feature heavily in the review’s findings

The letter states “we found that a significant number of SIPP operators are still failing to manage these risks and ensure consumers are protected appropriately, despite our recent guidance”, and as a result it has limited the business of several SIPP operators in recent months and expects to visit more firms in the near future.

The outcome to the third thematic review into SIPPs is now extremely worrying, with smaller C4 firms especially at risk. Whether they can weather this or will need to consolidate remains to be seen.

The full FCA thematic review can be found here, and the ‘Dear CEO’ letter here.

Due out next month is the FCA’s long awaited policy statement on the capital adequacy requirements for SIPP operators. It will be interesting to see how closely it mirrors CP12/33, what sort of capital adequacy will be required for ‘non-standard’ assets and whether or not commercial property will be exempt from the ‘non-standard’ asset list.

Once again the SIPP operators are under the spotlight with uncertainties surrounding how they should function.