A recent report called for employers to provide personal pension advice via independent financial advisers (IFAs). We take a look at how this move could be risky for both employers and employees.
Due diligence
One huge factor in mis-selling that could have seen many cases avoided is due diligence. An IFA is responsible for carrying out due diligence on an investment. If they don’t, any employer who hired them could become implicated in any mis-selling cases as they provided the IFA, almost acting in the role of an introducer.
Employees should have the right to carry out their own due diligence and choose an IFA that they believe will act in their best interests.
Exposure to risk
A third of mis-selling victims that we have helped earn a salary of less than £20k, meaning that they had no ‘plan b’ when they lost their pension pot to mis-selling. Transferring a pension into a Self-Invested Personal Pension (SIPP) is a risky investment for most people. However, the opportunity to increase retirement funds can be appealing enough to many to ignore these risks.
Having an IFA that is obligated to provide alternative options, with no fee for the client to pick up, can seem too good an opportunity for some to refuse. However, the majority of employees will not have prior investment advice to fully comprehend the risk that every SIPP carries, and the consequences that losing their pension pot carries.
Contingent charging
Contingent charging often creates an unfair relationship between client and IFA because it gives a better incentive to transfer than not to transfer. While employers would likely be paying a flat fee for an IFA’s time, contingent charging is where the most money is made and can have an impact on the duty of care.
Changes have been proposed by the Financial Conduct Authority (FCA) to ensure higher quality advice, but six months on, nothing has been done.
Read more: Our thoughts on the proposed contingent charging ban
If you feel that you may have fallen victim to mis-selling, get in touch for a consultation.