Independent financial advice firm is fined for providing its customers with unsuitable pension switching and transfer advice and failing to manage its conflicts of interest.
Between March 2010 and December 2012, the Warrington-based firm recommended that 114 customers transfer their pensions into self-invested personal pensions (SIPPs), without providing any advice on the underlying investments which were to be held in those SIPPs. These investments were often high-risk, esoteric and illiquid. The total amount invested in this way by LJFP’s customers was just over £6,000,000.
In making its recommendations to customers, LJFP was required to consider not only whether a SIPP was a suitable investment vehicle for the customer based on their individual circumstances, but also whether the investments held within the SIPP were suited to the customer’s needs and appetite for risk. LJFP failed to do so. LJFP was aware that these investments were potentially high-risk, and yet was not prepared to advise customers on the underlying investments. One senior employee made clear in an email to the firm’s compliance partners that the firm did not ‘want to know’ what those underlying investments were.
The FCA found that LJFP failed to take reasonable care to ensure the suitability of its advice for these customers, who were considering whether to transfer their existing pensions into a SIPP and who ought to have been able to rely upon its judgment in relation to the suitability of this transfer. Accordingly, LJFP breached Principle 9 of the FCA’s Principles for Businesses (the Principles).
To date, LJFP has paid redress of £2,668,819.97 to 41 customers who have been impacted by this failing. LJFP will be conducting a customer contact exercise in relation to the remaining customers in order to assess their eligibility for redress.
Between January 2013 and November 2017, LJFP also failed to ensure that it identified and managed potential conflicts of interest fairly between itself and its customers, in breach of Principle 8 of the FCA’s Principles.
During this period, LJFP recommended Amber Financial Investments Limited as a wrap platform for its customers and that customers make investments through Tatton Investment Management, a discretionary fund manager, without disclosing to customers that it had shareholdings in these companies.
Mark Steward, Executive Director of Enforcement and Market Oversight, said: ‘Investors should be able to trust their financial advisers with the pension contributions they’ve built up over a lifetime of hard work. These failings were especially serious because LJFP facilitated the transfer of these investors’ pensions into high-risk investments without assessing whether the investments were suitable for investors.
‘In many instances, these investments are now worthless and many investors are approaching or already in retirement and so especially vulnerable to the risk of significant losses. Redress is important but these investors should never have been placed in this position in the first place. Investors should also be able to rely on their financial advisers to manage conflicts fairly and to disclose them so investors are able to make better informed decisions.’
Notes to editors
- Final Notice for LJ Financial Planning Ltd
- LJFP agreed to resolve this matter and qualified for a 30% (stage 1) discount under the Authority’s executive settlement procedures. Were it not for this discount, the Authority would have imposed a financial penalty of £153,200 on LJFP.
- The FCA’s Principles for Businesses.
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- The FCA’s Business Plan 2020/21 highlights enabling effective consumer investment decisions as one of the FCA’s five key priorities for the next 1-3 years.
- Find out more about the FCA.