On 31 July 2018, the Upper Tribunal upheld the Financial Conduct Authority’s (FCA) decision to prohibit Alistair Burns, Director and CF1 of TailorMade Independent Limited (TMI) from performing any FCA significant influence or senior management function, on the basis of his fundamental lack of competence and capability to perform such functions.
The Tribunal also directed the FCA to impose a fine on Mr Burns of £60,000 on the basis that he had breached the FCA’s Statement of Principle 7 by failing to ensure that TMI complied with its obligations under the regulatory regime.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
'Mr Burns failed to ensure that TMI managed its conflicts of interest, benefiting financially from his role as shareholder and director at an unregulated introducer alongside his regulated role, to the detriment of his customers. Our action sends a strong message that failing to manage conflicts of interest fairly and disclose them clearly is completely unacceptable.'
Between January 2010 and January 2013, TMI provided advice to 1,661 customers who were considering transferring or switching their pension funds via self-invested personal pensions (SIPPs).
The Tribunal found that TMI’s customers were given wholly unsuitable advice to transfer pension benefits into a SIPP which was to be invested in either a single, or a very small number of, inherently risky overseas property investments.
The Tribunal also found that Mr Burns had a significant financial interest in the outcome of the unsuitable advice TMI was giving to customers. He co-owned and co-directed an unregulated introducer, also operating under the 'TailorMade' name, which referred clients to TMI. The introducer was paid significant amounts of commission by the provider of the alternative investment product concerned when TMI advised a customer to transfer their pension into a SIPP, and the customer subsequently invested in that alternative investment following the pension transfer. Typically, the customer was not informed either by TMI or the introducer of the payment of this commission or its amount.
There was therefore an obvious conflict of interest between Mr Burns and TMI’s customers which needed to be managed. Mr Burns did not identify, and TMI failed to manage, this conflict of interest.
The Tribunal also confirmed the FCA’s position that when a financial adviser gives advice to a customer who wishes to transfer out of their current pension arrangement to release funds to allow them to invest in an overseas property investment through a SIPP, then the financial adviser must consider not only the suitability of the SIPP itself but the suitability of the investments to be held in it.
The Tribunal found that in these circumstances a financial adviser cannot give suitable advice if it advises on the SIPP alone because the SIPP and its underlying investments are part of an 'indivisible package of rights' which form a customer’s overall pension arrangements.
To date, compensation totalling over £55.6 million has been paid by the Financial Services Compensation Scheme (FSCS) in relation to claims upheld against TMI. This does not cover all the losses suffered by investors, which the FSCS assesses at more than £106.5 million.
The Tribunal’s decision was issued following a hearing which took place from 14 to 25 May 2018. The FCA issued its Decision Notice on 22 July 2016.
Notes to editors
- The Upper Tribunal decision.
- The Decision Notice for Alistair Burns and press release.
- TMI was dissolved on 9 July 2016.
- In July 2017, the FCA notified the Tribunal that it had decided to pursue a financial penalty on the basis of Mr Burns’ failings in relation to conflicts of interest only, in light of an issue which had arisen regarding the FCA’s power to fine Mr Burns for his failings in relation to TMI’s advice model.
- Affected customers should contact the Financial Services Compensation Scheme (FSCS) on 0800 678 1100. The FSCS is the compensation fund of last resort for customers of authorised financial services firms. Find more information about the FSCS.
- Find out more information about the Upper Tribunal (Tax and Chancery Chambers).
- In January 2013 the regulator issued an alert clarifying the obligations of financial advisers giving pensions transfer advice.
- In April 2010, the Financial Services Act 2010 amended section 391 of FSMA giving the regulator the power to publish decision notices. This power became active in October 2010.
- The regulator's approach to publishing decision notices was explained in Policy Statement 11/3 published in January 2011.
- On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- 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 Business Plan 2016/2017 has identified seven priority themes, two of which are 'Pension' and 'Advice'. Find out more information about the FCA Business Plan 2016/2017.
- Find out more information about the FCA.