FSA says cost comparisons paramount when switching

The FSA defines replacement business as the switching of any existing investment into a new investment solution.

In final guidance on the issue, published earlier this year, the regulator said a prime reason for mis-selling cases identified in pension switching and platform reviews had been unnecessary additional costs.

And speaking at Succession's National Members' Forum in London, Rory Percival, a technical specialist at the FSA, emphasised the focus the regulator was putting on monitoring costs.

He said: "The message is very simple: unless you're doing cost comparisons and taking costs into account projectively, you're going to get in trouble with the regulator.

"The FSA is often criticised for not being clear about things, but this one is very clear: you have to do cost comparisons."

However, he added increased costs would not necessarily equate to unsuitable advice.

"You do need to justify what the additional cost is. You might ask how much additional cost is acceptable. The answer is there is no single figure," he explained,

"One firm we visited had an approach whereby it set a guideline internally that all the advisers knew: if the cost is more than 50 bps per annum, then they go through a sign-off process, and that is a typical kind of control.

"We would expect firms to have thought through the issue and have controls around this subject."

During his appearance at the event, Percival also addressed concerns about the readiness of advisers ahead of the Retail Distribution Review (RDR) implementation deadline at the end of the year.

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