14Aug

The Financial Conduct Authority (FCA) has announced that the Upper Tribunal has upheld an original FCA decision to prohibit a director of a financial advisory firm. The firm in question gave advice on Self-Invested Personal Pensions (SIPPs), and the director has been banned from holding any significant influence or management functions within financial services. He has also been fined £60,000.

The FCA acted after finding evidence that the firm had given “wholly unsuitable advice to transfer pension benefits into a SIPP which was to be invested in either a single, or a very small number of, inherently risky overseas property investments.”

The actions of the banned individual also included failing to disclose his financial interest to clients. He co-owned and co-directed an unregulated introducer, which referred clients to the advisory firm. Once the advice had been given, the introducer firm received significant amounts of commission from the provider of the SIPP investment.

In summary, the FCA believes that the individual failed to comply with Statement of Principle 7, which requires senior management to ensure that firms meet their obligations under the regulatory regime. The regulator adds that it has significant concerns over his competence and capability.

Although the firm 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 clients of the firm 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.

SIPPs continue to have high uphold rates in complaints data published by the Financial Ombudsman Service, and the FCA has real concerns about the suitability of the advice being given by firms offering this product. The regulator continues to urge firms to consider that they are also responsible for the suitability of the underlying investments, and not just the suitability of the SIPP itself.

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

“[Name of director] failed to ensure that [name of firm] managed its conflicts of interest, benefiting financially from his role as shareholder and director at an unregulated introducer alongside his regulated role, to the detriment of his customers. Our action sends a strong message that failing to manage conflicts of interest fairly and disclose them clearly is completely unacceptable.”

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