The FSA continues to focus on financial promotions with more enforcement action. The target here was an independent financial adviser approving misleading financial promotions. The fine was well into five figures.
Topic: Financial services
Who: The Financial Services Authority and Kings
Where: November 2005
The UK's Financial Services Authority (the FSA) fined Maidstone-based independent financial adviser (IFA) firm, Kings, £60,000 for approving misleading financial promotions for pension unlocking and failing to withdraw that approval as soon as reasonable practical after becoming aware of non-compliance and repeating past mistakes in subsequent promotions, as well as failing to maintain effective systems and controls for ensuring compliance.
The action related to nine financial promotions across a range of media – TV adverts, direct mails, website based promotions and brochures – approved by Kings and communicated by Regal Partners between December 2001 and February 2004. Kings is an IFA which specialises in pensions advice. Regal Partners is an unregulated firm which, from the same office, carries out all the administrative functions in connection with Kings' pensions unlocking advisory service and acts as an introducer to Kings.
Pensions unlocking is a generic term that is applied to the early realisation of pensions benefits prior to the selected or normal retirement date. It generally allows customers to take a tax-free lump sum out of their pension fund, buy an annuity with the rest of their fund to provide a pension income for life and to leave any ''protected rights' invested at least until the age of 60. The risks involved and drawbacks are serious, to the extent that the FSA considers that "pension unlocking is likely to be suitable for a very limited number of people and circumstances only. Pension unlocking should only be considered as an avenue of last resort."
The deficiencies n the financial promotions identified by the FSA included:
- lack of balance: failure to give risk warnings at all or to give sufficient prominence to them: e.g. none of the three TV adverts concerned included a verbal risk warning and one that included for a brief period only a written warning merely cautioned that "Talking benefits early will reduce what you will receive in retirement. Pension release may not be suitable for everyone";
- misleading statements/claims: e.g. "Helping you make the mot of your money"; and
- failure to identify the role/involvement of Kings by not naming the firm at all or making misleading statements about the relationship between Regal Partners and Kings: e.g. whereas Regal Partners acts exclusively for Kings, one promotion stated that "Regal Partners Limited acts as an introducer to Independent Financial Advisers".
The FSA regarding the failings as particularly serious because of the high risk associated with pension unlocking, the potential reach of the promotions and the two year period over which the failures persisted. Not only did Kings not identify the deficiencies in the first place, they also failed to act to remedy them after the FSA discovered the issue.
For Kings, the fine is only part of the penalty: it has also appointed a full-time compliance officer and agreed to appoint an independent third party to review all of its procedures for approving and monitoring financial promotions. These concessions helped keep the fine down, but at what cost? Quite what the impact will be on its advisory service, only time will tell: this was not part of the FSA's investigations.
Why this matters:
This is another instance of the FSA continuing to reinforce its focus on financial promotions and to highlight the principle of 'clear, fair and not misleading'. Consistently with past enforcement actions in this area, not only was the firm concerned fixed with counts of specific Conduct of Business rule breaches, but also with breaches of senior management arrangements and systems and controls rules and FSA general principles.
It is particularly interesting to note:
- that the action was brought in the absence of any complaints – either to the FSA or Kings – from customers who contacted Regal Partners as a result of the financial promotions concerned; and
- the level of response generated: 1,237 out of 2,518 customers (just under 50%) referred by Regal Partners to Kings for pension unlocking advice during the relevant period initially contacted Regal Partners as a result of the non-complaint promotions.