By Max Clarke
The Financial Services Authority (FSA) has levied fines totalling £143,500 on two firms which failed to check the suitability of the pension switching advice they gave their customers.
Perspective Financial Management (PFM), based in Milton Keynes, was fined £49,000, while Cricket Hill Financial Planning Ltd, in Barnsley, was fined £70,000, along with the firm’s director Jeremy Sheard who will pay £24,500. His colleague Mark Kelsey, responsible for compliance, was issued with a public censure.
Cricket Hill had significant problems with its advice and sales processes. Its advisers were routinely recommending customers switch their pensions to a pension fund risk management service, without sufficiently researching alternative products. The firm could not demonstrate the suitability of this advice, particularly as most of its customers were unsophisticated financially and had small pension pots.
Cricket Hill and Sheard also failed to identify and manage conflicts of interest adequately. Sheard, for example, owned shares in the risk management service which his firm was advising most customers to use and this was not disclosed. However, no payments, or dividends to shareholders, were made by the risk management service firm to Cricket Hill or its directors and employees.
An investigation by the FSA found shortcomings in the way that PFM monitored its pension switching advice, resulting in customers’ receiving unsuitable advice. PFM failed to collect or record important information such as details of customers’ existing pension plan, needs and objectives.
The FSA found evidence of unsuitable pension advice in five out of the nine cases reviewed. PFM made unsuitable recommendations to customers to switch pensions when the new pension was almost identical to their existing scheme, meaning customers incurred unnecessary costs. The investigation also revealed that customers could not make informed decisions about whether to switch pensions as PFM provided inadequate information on the cost of services associated with the new pension such as discretionary fund management.
The FSA also found that PFM failed to put in place any system or procedure to ensure it only recommended Unregulated Collective Investment Schemes to customers who met specific, statutory, exemptions such as customers who were high net worth or sophisticated investors.