We had a tentative enquiry from a prospective client yesterday who asked if FSA authorisation and regulation was “a voluntary thing”. It is absolutely not!
The Financial Services Authority (FSA) this week levelled big fines and redress requirements against two large IFA firms for unsuitable advice.
RSM Tenon Financial Services Limited received a £1 million fine, reduced to £700,000 because they fully co-operated and agreed to settle at an early stage of the FSA investigation.
This fine for RSM Tenon was for significant failings in its advice and sales processes relating to Lehman-backed structured products, and for having poor systems and controls to prevent unsuitable advice in its structured product and pension switching business.
In addition to the fine, Tenon will have to conduct a review of past advice and offer to buy back products from any customers who received unsuitable advice. This could cost them a further £1.8m in respect of Lehman-backed structured products alone.
The other major action by the FSA this week was against Park Row Associates Limited, a national IFA network, for failing to ensure its sales were suitable. This public censure secured customer redress estimated at between £5m and £7.8m.
The FSA also fined the firm’s former chief executive, Peter Sprung, £49,000.
We are very different to these firms.
Here at Informed Choice, we have a number of CFP professionals, we are a firm of Chartered Financial Planners and we are a finalist for the Money Marketing IFA of the Year Award, with the winner due to be announced next month. This is where any similarities with Park Row or RSM Tenon end.
Our team-based approach to the provision of advice ensures that suitable advice is agreed before it is delivered. This differs from the approach at many IFA firms where a sole Financial Planner is responsible for the construction and delivery of advice, which is only checked for suitability at a later date once it has been put in place.
Our Investment Committee and robust investment advice process has enabled us to keep our clients away from questionable investment products, such as Lehman-backed structured products and the Arch Cru range of funds.
We place a great deal of emphasis on the importance of properly understanding the current position, goals and objectives of our clients. Until an IFA has this knowledge, they cannot possibly deliver suitable advice.
Importantly, because we charge fees for the provision of advice, there is nothing to influence us to recommend commission paying financial products. In the case of the sale of many structured products and where inappropriate pension switching advice has been given by other firms, it appears that high commission payments were the primary motivation for the advice.
The extent of Lehman-backed structured product sales means that these big fines and examples of bad advice are unlikely to be the last we see from the FSA this year. Hopefully IFA firms at the centre of this action will use it as an opportunity to improve their advice processes and ensure they deliver excellent advice to clients in the future.
