The FCA recently confirmed it will launch an investigation into ‘zombie funds’ as part of a general inquiry taking place this summer into the potential mistreatment of long-term financial customers. The announcement came only one week after Chancellor George Osborne declared pension savers would now be able to do as they like with their money from next year.
After the FCA announcement, shares of Phoenix Group, which operates under brands such as NPI, Royal & Sun Alliance, and Pearl, fell by 11.5 percent. Meanwhile, Resolution, which includes Axa Sun Life and Friends Provident under its umbrella, saw its shares plummet by 7 percent. This was after both companies recovered from steeper earlier losses that wiped approximately £3bn out of the sector.
In issuing a clarification of its plans regarding ‘zombie funds,’ the FCA said it would examine “how people in closed accounts are being treated.” The regulatory body also said it was “not planning to individually review 30m policies, nor do we intend to look at removing exit fees from those policies.”
Likely at the centrepiece of the FCA inquiry will be millions of investment and pension policies sold throughout the 1980s and 90s, in which tonnes of savers are allegedly being trapped by exorbitant penalty charges of 10 percent or more. In some cases, Britons must pay a penalty of more than 20 percent simply to freely access and move their money.
Many policies were sold by aggressive salespeople who earned £1,500 to £2,000 in commissions per policy, in which savers were sometimes being charged fees that accounted for the first two years of their contributions.
As the FCA inquiry is not looking directly at sales practices, it is clear that large-scale compensation similar to the massive PPI mis-selling scandal will not take place.
According to the FCA, the investigation will be a “supervisory piece of work” that will only examine a sample of the more than 30 million policies.
“These accounts have been closed for many years in some cases, but there are still valid issues to be looked at around the question of the service that consumers receive in relation to those accounts. Are they getting the right information? Are they getting the right level of service? Are these investments still appropriate?” the FCA said.
“It’s quite incredible just how much good news has hit the pensions industry over the last 10 days,” said David Smith, wealth manager at Bestinvest. “However, today’s news could be just as momentous, as it may free the millions trapped in underperforming high-charge funds and drive a stake through the heart of zombie funds once and for all.”