The Financial Conduct Authority (FCA) has announced its intention to ban and fine an advisory firm boss over his firm’s sales practices when advising on Self Invested Personal Pensions (SIPPs).
Unless he is successful in his appeal to the Upper Tribunal, Alistair Rae Burns, Chief Executive at TailorMade Independent Limited (TMI), will be prohibited from carrying out any significant influence or senior management roles in the future, and will need to pay a fine of £233,600.
TMI advised a number of customers to transfer funds from occupational pension schemes, including final salary (defined benefits) schemes, to SIPPs that invested in unregulated, high-risk areas such as biofuel oil, farmland and overseas property. Although TMI did carry out an assessment of clients’ financial circumstances, and assessed their attitude to risk, they still ended up recommending a transfer to a SIPP in almost all cases that the FCA reviewed. This runs contrary to 19.1.6 of the FCA’s Conduct of Business Rules, which states that:
“When advising a retail client who is … a member of a defined benefits occupational pension scheme, or other scheme with safeguarded benefits, whether to transfer, convert or opt-out, a firm should start by assuming that a transfer, conversion or opt-out will not be suitable. A firm should only then consider a transfer, conversion or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the client’s best interests.”
Many clients were still recommended to transfer to a SIPP even though they were not assessed as having a high attitude to risk.
Over a three-year period, 1,661 TMI clients invested a total of £112,420,985 in SIPPs. 923 of these clients invested in overseas property developments. 517 were advised to transfer funds out of a final salary scheme.
Furthermore, the vast majority of TMI’s clients were referred to the firm by an introducer firm, of which Mr Burns was a director. Mr Burns was therefore receiving his share of both fees paid to TMI for the advice to invest in the SIPPs, and commission paid to the introducer firm for supplying the lead in the first place. Mr Burns failed to inform clients of the existence of this conflict of interest, and failed to put in place a process for managing it.
The regulator comments that:
“Mr Burns failed to ensure that TMI provided suitable advice to its clients and failed to ensure that TMI managed fairly and clearly disclosed his own personal conflicts of interest and the conflicts of interest relating to other individuals at TMI.”
In August 2015, the FCA prohibited TMI director Robert Shaw from senior management functions, and fined him £165,900, for similar issues. Mr Shaw did not appeal against these sanctions.
TMI is now in liquidation.
The cases of Mr Burns and Mr Shaw further illustrate the risks incurred by firms that choose to offer SIPPs. The product had the highest uphold rate in the latest complaints data published by the Financial Ombudsman Service, with even more complaints about SIPPs being upheld than those about payment protection insurance.
SIPP mis-selling is also having a significant impact on the amount of compensation the Financial Services Compensation Scheme is having to pay out to clients of firms that are now insolvent.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.