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Home / FCA: Advisers to report “risky” product recommendations
Report risky investments to FCA Categories: FCA Mis-sold Pensions UCIS

The FCA seems to have had enough of people ending up in risk investments

  • New requirements for advisers as FSCS compensation pays out £105m
  • FSCS funding levies considered
  • What it means for investors

The Financial Conduct Authority will be asking all independent financial advisers to report when they recommend potentially high-risk investment products to clients.

It means that if an IFA wants to recommend high-risk investments, often accessed through SIPPs (Self-Invested Personal Pensions), this would have to be reported to the top-dogs at the FCA.

Mounting FSCS claims related to high-risk investments

High risk investments like overseas property, store pods and forestry schemes should only be recommended to people who have enough money to afford that risk, and who understand it. The FCA defines these people as “High net-worth individuals earning over £100k” and “Sophisticated Investors”.

But despite these rules, the FSCS has paid out over £105 million over the last year to people who were advised to invest in these high-risk products through SIPPs, indicated that not everyone is following the rules, either through negligence or in search of big profits.

FSCS Funding

The Financial Services Compensation Scheme is often referred to as the “lifeboat” fund, because it’s there to pay claims to individuals who have lost money through Financial Services transactions when it WASN’T their fault. First, claims for things like negligent financial advise are put direct to the responsible adviser, or through the Ombudsman if there’s a lot of friction on the initial complaint.

But if the adviser is no-longer operating, or the FSCS is satisfied it can no longer payout claims made against it, the FSCS is there to pick up the slack, with claims capped at £50,000. But where does the money come from?

It comes from good advisers who when authorised by the FCA, pay their levy into the FSCS. All the more reason for the FCA and advisers to want to put an end to pension mis-selling.

What it means for investors

What this action might mean for investors and SIPP providers in the long run is not clear yet. If the move gives the FCA enough information to effectively fight pension mis-selling through risky investments, it may quicken the regulator’s response to firms who are operating in grey-areas, lessening the chances of people being mis-sold in the long-term.

Only time will tell. In the meantime, you can have your pension advice checked for FREE with our Initial Assessment service.

Tags: FCA


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