The Financial Services Authority has said that it is concerned that customers are still being sold unsuitable replacement investment products as well as being slotted into a ‘one-size-fits-all’ financial solution that may not fit their individual needs.

The FSA has said that “It is unacceptable that many firms are still not demonstrating the suitability of replacement business.”

The FSA findings came about after a thematic review of how advisory firms were preparing for the Retail Distribution Review, which will change how advisers are remunerated as it bans commission payments. The FSA was looking specifically at the use of ‘Centralised Investment Propositions’ (CIP) where the clients’ funds are placed into some sort of standardised fund but it widened the remit as it became clear that there were still some worries over how replacement business was conducted.

The FSA looked at 181 case files from 17 firms that recommend the use of a CIP. The FSA assessed that:

  • The quality of advice was unsuitable in 33 of the cases.
  • The quality of advice was unclear in 103 cases
  • The quality of disclosure was unacceptable in 108 cases.

Some of the key findings showed that firms were not researching investors’ current investments properly to ensure what they were replacing it with was actually to the clients’ benefit. They were also not providing sufficient evidence to back up their recommendations that the new fund would out-perform the old one.

These failings went towards creating ‘…a significant risk that clients are receiving unsuitable advice to switch investments’.

It was not all bad news though, the FSA did find firms that looked carefully at the use of CIPs and only recommend them where they were suitable.

But at the centre as ever was the money that advisers and their firms could earn. “We expect firms to ensure they have robust systems and controls in place to mitigate the risk of unsuitable advice which might arise from recommending a CIP. Our review found that several firms received additional financial gains when recommending their CIP. This incentivised the firm and its advisers to recommend the CIP rather than an alternative solution. This inherent conflict of interest was not managed and created a clear risk of clients receiving advice that was not in their best interests.” Said the FSA.

FSA Main Entrance by Sson

FSA Main Entrance by Sson

Image by Sson (Own work) [GFDL (, CC-BY-SA-3.0 ( or FAL], via Wikimedia Commons

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