‘Networks must ditch rogue IFAs immediately’, says AR
IFAs who breach network rules should be kicked out immediately or held personally responsible if they have not complied, Rosemary Heaversedge has said.
Ms Heaversedge, principal for Shropshire Independent Financial Services, said as a network member she was concerned that advisers who recommend unsuitable products that go belly-up, are not kicked out straight away, posing potential problems for professional indemnity renewal.
She said being “dealt with robustly” was not enough, because if a network pays out a compensation claim for an IFA who mis-sells a product, the other network members are the ones who end up paying for the mistake.
This results in higher and unaffordable PI premiums, which could lead to insolvency of the network.
Failed network Honister Capital went into administration in early July because it could not pay its PI insurance.
Ms Heaversedge, who is a Sesame member, said: “If networks don’t get rid of people, it puts everyone else’s livelihoods at risk. All of us network IFAs are watching Honister unravel with some apprehension because clearly we could suddenly find ourselves in the same position. Compliance is exceedingly strict, providing IFAs don’t lie, so what networks must do is get rid of rogue IFAs more quickly.”
For instance, Ms Heaversedge also said she was dealing with a client whose previous adviser – a member of a different network – had told him to transfer £330,000 from his defined benefit NHS pension into a self-invested personal pension.
The adviser took 13 per cent commission over the years and doubled the initial charge.
She and the client, a GP, lodged a complaint to the Financial Ombudsman Service in October 2011 and are waiting for an outcome.
Ms Heaversedge said: “Perhaps IFAs should know that they could be sued personally, rather the network paying up, or that they will be personally liable if they have not complied. IFAs choose to use a non-approved investment, but not only could they ruin the lives of other IFAs if the provider goes bust, but also the poor clients’ lives.”
Ms Heaversedge also pointed out that when many IFAs were investing client money into Arch Cru, she called up her network, who told her to steer clear of the investment.
Honister Capital, which includes IFA networks Sage Financial, Honister Partners, and Burns Anderson, entered administration on 3 July primarily due to a failure to secure professional indemnity insurance.
Keith Richards, group distribution and development director for Tenet, said: “Understandably, advisers will have varying levels of apprehension regarding the security of their network, national or regional firm following the recent collapse of Honister, but to suggest that networks in particular should be stricter will, of course, depend upon the systems and controls already in place.”
Sesame was unavailable to comment before Financial Adviser went to press.
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- Honister Capital Limited in administration