FSA fines two firms for pension switching
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 (Cricket Hill), 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.
The regulator said that 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 (UCIS) to customers who met specific, statutory, exemptions such as customers who were high net worth or sophisticated investors.
Margaret Cole, managing director of the FSA’s enforcement and financial crime division: "Pension switching is a complex area, and any adviser recommending a change of provider must be able to demonstrate that this advice is suitable."
"Firms that fail to do this put customers at risk of being worse off due to exit penalties applied to their existing pension and higher charges on the new pension."
"The FSA considers the failings at PFM and Cricket Hill to be serious, and will not hesitate to take action where we find evidence of bad practice relating to pension advice."
Both firms cooperated with the FSA’s investigations. In addition to the fines, the FSA has appointed a skilled person to carry out past business reviews of relevant pension switching cases at both firms.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.