Consumer Panel urges FCA to act on non-advised sales of retirement products

26 March 2015

In response to today’s publication by the FCA of its final report following the retirement income market study, the Financial Services Consumer Panel has called on the regulator to take immediate action to protect consumers who buy their retirement products through ‘non-advice’ sales.

Sue Lewis, Consumer Panel Chair, said:

“The remedies proposed by the FCA are welcome, but do not go far enough. There has been evidence of a shift towards purchasing annuities via 'non-advice' sales for some time. Coupled with imminent pension reforms, this practice will be extended to more complex products such as drawdown. Non-advised sales often have opaque cost structures and offer greatly reduced consumer protection if things go wrong.

The increase in non-advised sales appears to be driven by lighter touch regulation and higher profit margins, not consumer demand. Consumers don’t understand the difference in advised and non-advised sales, and at the very least must be alerted to the loss of protection if they go the non-advised route. The risk of these consumers suffering detriment is real and immediate.

We suggested over a year ago that the FCA should embody in its rules and mandatory standards the equivalent of a code of conduct for the non-advice market. It now looks as though it will be 2016 before the regulator even thinks about this.”

The Consumer Panel published research in 2013 showed that the underlying causes of the expansion in non-advice sales included light-touch regulation and opaque cost structures, providing an opportunity for regulatory arbitrage in which non-advice services can expand at the expense of the professional advice market.

The Panel has called on the FCA to adopt rules and mandatory standards which guarantee high professional standards, the transparent disclosure of charges, and a clear explanation of the implications of non-advice for consumer protection.

Notes to editors

  1. Non-advice sales entail greater risks for consumers. By taking responsibility for the purchase, annuitants forfeit the right to a number of valuable consumer protection services, such as recourse to the Financial Ombudsman Service (FOS).
  2. In December 2013, the Panel published evidence that the annuities market does not work well for the majority of consumers. The Panel recommended urgent regulatory and government-led structural reform, including a code of conduct for providers of non-advice sales. The Panel’s study uncovered evidence of a complex market which is failing to deliver good outcomes for many consumers.
  3. In February 2014, Panel responded to the Financial Conduct Authority’s (FCA’s) interim findings and proposed remedies on the Retirement Income Market Study. It reiterated its call for a non-advice code of conduct.
  4. Although sales of annuities have fallen significantly since the announcement of the pension liberalisation reforms in the 2014 Budget, ABI figures still show that nearly 70,000 were sold in the last six months of 2014 alone.
  5. The Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Services Authority in December 1998. The Panel advises the FCA on the interests and concerns of consumers.
  6. The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
  7. The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available on its website or via its LinkedIn and Twitter accounts .