30Dec

The Financial Conduct Authority has fined a Warrington-based firm £107,200 for failing to give appropriate advice relating to self-invested personal pensions and for not effectively managing conflicts of interest.

The FCA says that the firm advised 114 clients to transfer existing occupational and/or personal pensions into a SIPP, whilst neglecting to ensure that the underlying SIPP investments were suitable for the clients given their needs and attitudes to risk. The regulator adds that many of the underlying investments were “high-risk, esoteric and illiquid” – examples included overseas and commercial property developments. More than £6 million was invested in SIPPs by the firm’s clients, but the FCA says that, in many cases, the clients’ investments are now worthless, at a time when they are approaching retirement and have little opportunity to rebuild their retirement savings portfolio.

The FCA says it has seen an email from a senior employee of the firm to the firm’s compliance services provider which says that the firm did not “want to know” what the underlying SIPP investments were. Indeed, the Final Notice contains an email exchange showing that the firm ignored advice from its compliance consultant, which included statements such as:

“It would not be deemed as acceptable to make a recommendation to transfer into a SIPP without making a recommendation as to where the monies should be invested within.”

The FCA reviewed 10 advice files and says that in each of these the firm failed to:

  • Provide a recommendation that was tailored to the client’s circumstances
  • Assess whether the SIPP was suitable for the customer
  • Calculate the full cost of the transfer incurred by the customer
  • Fully record the clients’ objectives
  • Assess the clients’ attitude to risk, capacity for loss or level of investment knowledge and experience
  • Fully assess the benefits being given up (where the client was transferring out of an occupational scheme)

The FCA also comments specifically on Customer A, who had an income of just £6,000 per annum and hence had a very limited capacity for loss. His only asset of any value was his occupational pension scheme. In the event that this pension scheme was depleted, he would have had no means of replenishing it given his low income and this would have had a materially detrimental effect on his standard of living in retirement. His investment knowledge was also limited and the charges on the SIPP were significantly higher than for his previous pension arrangement.

Furthermore, the firm recommended two other firms to its clients – one wrap platform and one discretionary fund manager – without disclosing that it had shareholdings in both firms and that a conflict of interest might therefore exist.

The advice failings lasted for a period of 33 months between March 2010 and December 2012, while the conflicts of interest issues lasted for some 58 months between January 2013 and December 2017.

The FCA believes that the firm was in breach of two of its Principles for Businesses:

8 Conflicts of interest A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9 Customers: relationships of trust A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

In addition to paying the fine, the firm has been forced to pay significant sums in redress to disadvantaged clients. To date, £2,668,819.97 has been paid to 41 clients and the firm continues to assess whether compensation needs to be paid to other clients.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

“Investors should be able to trust their financial advisers with the pension contributions they’ve built up over a lifetime of hard work. These failings were especially serious because [name of firm] facilitated the transfer of these investors’ pensions into high-risk investments without assessing whether the investments were suitable for investors.

“In many instances, these investments are now worthless and many investors are approaching or already in retirement and so especially vulnerable to the risk of significant losses. Redress is important but these investors should never have been placed in this position in the first place. Investors should also be able to rely on their financial advisers to manage conflicts fairly and to disclose them so investors are able to make better informed decisions.”