Improper delegation of authorised activities - a notice for financial adviser firms and their advisers

Published: 30/11/2015     Last Modified: 30/11/2015

Firms that are approached to delegate their regulated activities, such as providing pension switching advice, to an unauthorised third party need to be aware of the serious implications that may arise as a result of entering into this type of arrangement.

What is the issue?

Financial advice in relation to pension switching can play a vital role in helping people make informed decisions about their retirement savings, and may protect them from the irreversible losses of pension fraud and scams, as well as unsuitable high-risk investments. It is therefore essential that financial advisers uphold their responsibilities as described in our Handbook at all times, and maintain ownership of the advisory process between themselves and their client. It carries risk for an authorised firm to improperly delegate regulated advice to an unauthorised firm. The financial adviser remains responsible for all decisions, actions and potential harm resulting from regulated activities provided in their name and the associated liability for providing unsuitable advice.

What we found?

We have become aware of some financial adviser firms whose business model was to delegate the entire regulated activity of providing advice to an unregulated third party.  Retail consumers had been recommended to switch their mainstream personal pensions into SIPPs with underlying high risk assets that may have been unsuitable for the customer. This had been done through an improper delegation of regulated advice to unauthorised firms or individuals associated with the underlying assets. This model was operated by these parties while purporting to be the financial adviser firms. The authorised financial adviser firms did not personally contact customers or review whether the recommendations were suitable before they were sent out, despite being responsible for the advice provided.

What does this mean for firms?

Some financial adviser firms and associated individuals have been referred to our Enforcement Division because they may have breached the FCA’s requirements in relation to the advice provided to customers. Firms need to be aware that, while it is attractive to develop new business models, improper delegation of authorised activities may carry significant risks of poor consumer outcomes. Delegating regulated advice to an unauthorised party will not mean that the firm can avoid liability or regulatory action for unsuitable advice. If approached in regard to this type of activity, we urge authorised firms to consider the significant implications that entering into this type of arrangement could have on their professional reputation and future livelihood.

If you are approached and you take on business in this way, it may create a significant risk to your business model and may affect your professional indemnity insurance. We know firms will be mindful of principle 11, and we would encourage firms to contact us if they are approached by entities with a view to entering into the sort of arrangements described in this notice.

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