Today (17 April) the regulator banned and slapped a (redirected) fine on two partners who invested large amounts of client money into esoteric and high-risk investments, among them Harlequin Property, via self invested personal pensions.
Andrew Rees and Timothy Hughes, partners at now defunct 1 Stop Financial Services, had advised customers to switch their pension savings into unregulated and often high-risk products, “regardless of whether those products were suitable for the customers”.
The duo were banned by the FCA, but were told fines totalling close to £500,000 had been waived and will instead be paid to the Financial Service Compensation Scheme, which the FCA said could be hit with a barrage of claims in relation to the transfers.
Between October 2010 and November 2012, Mr Rees and Mr Hughes’ firm advised nearly 2,000 customers on switching their existing pensions, valued at in excess of £112m, into Sipps. Of the 1,959 Sipp customers advised, 958 invested around £56m in Harlequin.
The FCA said that not one of those customers received any advice from 1 Stop on the suitability of that overseas property investment.
Among the wider array of investments clients were piled into were companies in which the duo held stakes and from which they earned commission - and boy did they earn a wedge.
In April 2010, their firm focused on mortgage and insurance advice, which accounted for 52 per cent of revenue. By October 2012 a whopping 97 per cent of 1 Stop’s revenue was derived from its Sipp business.
Mr Hughes’s final notice revealed the fees earned from 1 Stop’s Sipp business in a two-year period was £4.3m. Mr Hughes himself received a total income of £1.5m during this period and Mr Rees received almost £1.2m.
They were fined a combined £490,100.
‘Tip of the iceberg’
This is the first action in relation to Harlequin investments via self-invested pensions in particular since the FCA first warned advisers last January over hefty transfers to Sipps weighted to the firm, whose UK sales arm has since entered administration.
It will not be the last.
The FCA said it published this alert after 1 Stop had “voluntarily ceased” to conduct Sipp business and to “reaffirm its expectations” of IFAs advising on overseas property investments.
At this moment in time, I have to point out, Harlequin investors have not yet made real losses. While the sales arm is indeed in administration, investors’ money is tied up in resorts and hotels controlled by an overseas arm that continues to trade.
Whether all is or will be well with Harlequin is a matter for others, including the courts in a number of cases, to decide.
The FCA, however, has already decided and made clear it was not happy with the amount of business being placed by certain advisers with a firm that FTAdviser has previously revealed was paying 9 per cent and sometimes more in commission.
It’s not just Harlequin, other esoteric investments we know are held in Sipps include overseas property firm Arck LLP and biofuel investments company Sustainable Growth Group. For the record, all three of these are subject to SFO investigations.
We’re talking millions of pounds here. Harlequin confirmed to me that over 50 per cent of its investments are held in Sipps, and we know a number of firms have heavy exposure to the other aforementioned firms among others.
The evidence is mounting that these final notices, issued today, are merely the tip of the iceberg when it comes to advisers, and surely some Sipp firms, shirking their responsibilities to their clients.
Expect more fines - and hope more of them are redirected to the FSCS. Otherwise you’ll all be picking up what will likely be a large bill over the coming years.
