The Financial Services Authority (FSA) has fined Norwich & Peterborough Building Society (N&P) £1.4m for failing to give its customers suitable advice in relation to the sale of Keydata products.
The fine comes in addition to N&P making ex-gratia payments to all of their customers with Keydata investment products, to make sure they do not lose out as a result of advice to invest in this failed company.
N&P recommended that 3,200 customers invest money in Keydata life settlement products over a three year period.
They failed to properly assess the financial circumstances of many of these customers, in some cases allocating a higher attitude towards investment risk to the customer than they were willing or able to take.
This is a good example of how not to deliver investment advice.
Investment advice is always best delivered by a suitably experienced and well qualified independent financial adviser. Taking advice from your bank or building society will result in the sale of whichever investment product they have to sell, rather than receiving professional advice.
Investors should treat any recommendation to move money away from cash savings and into an investment product with a high degree of suspicion. The motivation for this recommendation is often to generate a commission payment which would not have been paid had the money stayed in cash.
From the end of next year, all financial advisers (including those who sell products for banks and building societies) will have to meet the same higher standards in respect of qualifications and adviser charging. This should result in a more transparent outcome for investors, although we suspect that the banks will still have a focus on sales rather than advice.
This FSA fine could lead to more action being taken against firms who sold life settlement products from Keydata without properly assessing risk tolerance or financial objectives.
As an authorised and regulated firm, we recently had to pay over £10,000 towards the cost of compensation for Keydata investors. This interim levy for the Financial Services Compensation Scheme (FSCS) was despite never recommending these investments to our clients.
We are therefore pleased to hear about the action taken against N&P today and hope that robust regulatory action is also taken against others who committed similar offences.
Whilst we do not expect to see a refund of our FSCS levy, further FSA fines should discourage those ‘advisers’ who feel it is acceptable to recommend toxic investment products and then dump their liabilities on the rest of the intermediary sector.
