Last month we reported a £165,000 FSA fine for misleading financial promotions. Now a still higher fine has been meted out, this time for allegedly misleading ‘pension unlocking’ product ads and sales. Go to
Topic: Financial services
Who: Berkeley Jacobs and the Financial Services Authority
When: February 2004
The Financial Services Authority ("FSA") beat its previous record £165,000 fine for misleading financial product ads by fining Berkeley Jacobs Financial Services Limited ("BJ") £175,000 for misleading advertising and serious failings in related advice given to consumers.
The products in question related to "pension unlocking" products, by which cash saved for retirement could be released before the saver retired.
The outcome of the FSA enquiry could potentially affect over 5,000 consumers advised by BJ between December 2000 and March 2003. BJ's successor company is now reviewing all those cases and has set aside £1,000,000 to cover compensation costs and the cost of the review.
BJ advertised the product extensively on Sky television with a series of cartoon style commercials. These only promoted the benefits of the cash release. None carried any warnings that this action would reduce income in retirement and might not be suitable for everyone. Consumers were encouraged to use the cash for short term benefits such as holidays and buying luxury goods.
In the FSA's opinion, BJ compounded the error by gathering insufficient information from consumers who enquired about the product before signing them up, making an insufficient assessment of individual customers' needs and failing to provide comprehensive suitability reports to potential customers to enable them to make a properly informed decision as to whether to go ahead.
The more cash that was released, the more BJ benefited and BJ's practices were generally described by the FSA as showing a "blatant disregard for consumers' interests."
BJ failed to identify the breaches itself, nor did it accept the FSA's concerns when it was first notified of them following a supervision visit in October 2002. It was only after the gravity of the matter became clear to BJ's owners, IFG Group Plc, that extensive and appropriate remedial action was taken to address the concerns identified.
Why this matters:
Clearly the ramifications of this serious case are still ongoing, with potentially substantial sums having to be paid out to disabused consumers. As part of its remedial action IFG is ensuring that additional compliance staff will be recruited and appointing external consultants to review all sales and compliance procedures with a view to making recommendations for changes where appropriate. Systems for obtaining sufficient information from customers are also being improved, replacing the previous BJ forms which made no provision for obtaining crucial information from potential customers, such as the amount of income they felt they might need in retirement, the value of any life policies that were not committed to anything or any relevant information about any current pension arrangements.
As we have been saying for some while now, the FSA is clearly getting tougher on financial product advertising that is regarded as either misleading, unfair or unclear and those devising, advertising and advising on financial products should take note.