Watchdog says IFA pension 'churning' continues

Personal pension 'churning' for higher commissions is still occurring among IFAs, according to a report published today which has been discredited by the trade body representing independent practitioners.

Consumer Focus, a statutory consumer watchdog, said it had uncovered evidence in a sample of 31 IFA contracts that advisers are unnecessarily switching clients' into products which carry higher charges, have bigger set-up costs or are higher-risk.

It said its findings, outlined in Is it advisable? An investigation into switching and advice in the individual personal pensions market, corroborate those contained in an FSA review into pension switching advice in 2008.

That study found unsuitable advice had been given in 16% of 500 cases it reviewed across 30 firms.

"The majority of customers were moved to more expensive products and more than one customer was sold a product that did not meet their stated expectations," the watchdog said of its latest findings.

"It is concerning that in no case was the client advised to take out a stakeholder pension."

Consumer Focus recommended the FSA carry out a market-wide investigation of the churning of personal pensions by IFAs "in order to identify mis-selling and take action to stop it".

But the Association of IFAs (AIFA) said the report was based on a "great deal of conjecture and speculation" and "appears to be very thin on evidence".

Andrew Strange, director of policy, said: "To make sweeping statements about pension switching is a gross injustice to the advice profession and will only serve to undermine consumer confidence.

"Extrapolating industry wide conclusions from only 31 individual samples of advice, for example, is not robust research. There is also no attempt to assess the value of the advice given."

Strange added the fact the report failed to consider the wider pensions market was "particularly disappointing".

"There are in excess of 10,000 financial advisers operating in banks, insurance companies and in tied capacities," he said. "Consumer Focus has inexplicably decided to ignore these entities."

Elsewhere, the report suggested IFAs are currently "building up" trail income ahead of remuneration changes being rolled out in January 2013.

Although the RDR will outlaw the payment of commission from providers to advisers on post-2012 new business, trail commission can continue to be paid on policies set up before the deadline.

According to Consumer Focus, it has evidence some consumers are signing up to paying trail commission to their adviser for the life of the product - "which may be decades" - without receiving any tangible benefit.

It recommends the FSA force insurance companies to "open their books" so it can review the current use of trail commission and take action to stop it where consumers are not benefiting.

"This needs to be done quickly as it appears that trail commission is increasing in advance of the expected RDR ban," it said.