In 2010 when the FSA scrutinised internal communications distributed by the network Financial Ltd, which had suggested to its members, “We have a laid back approach to compliance: all members are experienced IFAs”, you could have perhaps foreseen the eventual downfall of the person ultimately responsible – the firm’s CEO, Charlie Palmer.
Mr Palmer’s internal marketing strategy undoubtedly roused the regulator’s interest in his network, as it questioned the culture of the firm and its governance structure. The regulator began several thematic reviews, which resulted five years later in Palmer’s departure from the firm. In September 2015 the FSA’s successor, the FCA, sought to prohibit Mr Palmer from performing any significant influence function in any regulated activity. Although Mr Palmer has challenged the FCA’s decision, referring it to the Upper Tribunal.
Mr Palmer began his financial career in 1992 with Allied Dunbar, quickly progressing and setting up Financial Ltd in 1997, offering independent advice as a sole trader. He rapidly developed his business and by 2014 Financial Ltd boasted 290 appointed representatives with 350 independent financial advisers.
Several businesses under the control of Mr Palmer were eventually consolidated under the holding company Standard Financial Group Ltd which encompassed the network, a discretionary fund manager, a company providing self-invested personal pensions, and the compliance specialist, IFA Compliance Ltd. With a turnover of £35 million in 2014, Mr Palmer established himself as a financial services entrepreneur.
In 2010 his rapid expansion and early success began to wane. The FSA issued a £49,000 fine to Mr Palmer personally for failing to install effective systems to monitor pension switching.
In 2014 the FCA fined the firm an astonishing £12,589,134 after it failed to properly supervise its IFAs. The regulator had to concede Financial Ltd had no means of paying the fine so waived the amount in favour of banning recruitment for a short period. Mr Palmer co-operated fully with all the investigations and attempted to change the company’s senior management and controls.
Unfortunately, the changes left the regulator unconvinced. The final FCA investigation in 2014 led to Mr Palmer leaving the firm. Tavistock Financial bought the assets of the holding company Standard Financial in February 2015 for £2.7m, acquiring 324 advisers in the process and £3bn of assets under management.
Mr Palmer’s dealings with the FCA did not conclude with the liquidation and disposal. In September 2015 the regulator again fined him personally £86,691. It is possible the FCA’s onslaught and public mauling of Mr Palmer sends a strong message to the network community: if you hold a senior management post, you will be held to account for the governance of the firm.
In addition to Mr Palmer, the FCA targeted Paivi Grigg and Steve Bell, both former senior managers at Financial Ltd who received fines of £14,807 and £33,800 respectively, while Mr Bell was barred from holding significant influence functions in regulated firms.
The FCA is perhaps aware the network model exhibits fundamental weaknesses; specifically, it is unachievable even for a highly skilled management and compliance team to supervise advisers working remotely who follow individualistic business models.
Although Mr Palmer and his management team must take the ultimate responsibility, the 350 financial advisers ought to take their share of culpability. The FCA has completely exonerated the appointed representatives who made recommendations which resulted in unacceptable client outcomes. Why the regulator has failed to identify and pursue the appointed representatives who fundamentally gave the deficient advice remains unknown.
Mr Palmer is now the chairman of IFA Compliance Ltd, a business spun off from the holding company prior to the liquidation and disposal in 2015. Perhaps the final irony – a peculiar conclusion to the Financial Ltd story – is that after those fines of over £12m due to poor governance and compliance management, Mr Palmer’s future is founded on helping others manage their compliance processes. If there was ever a sound reason why compliance firms should be regulated, I think we have just found it.
Richard Bishop is a lecturer in financial services at Coventry University College and a practising regulated financial adviser
