It follows a 300-page judgment issued by the Upper Tribunal in which the five directors unsuccessfully challenged the FCA’s decisions.
The tribunal found Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer had failed to act with integrity “having either acted dishonestly or recklessly”.
Each had been directors at failed financial advice firms: Financial Page Ltd, Henderson Carter Associates Limited, and Bank House Investment Management Limited. Three of them were financial advisers.
The City watchdog said the firms provided unsuitable advice to more than 2,000 customers, with losses of more than £50mn.
The FCA said the firms caused customers to place their pensions in high-risk financial products in self-invested personal pensions in which Hennessy Jones, an unauthorised firm, had a significant financial interest.
Speaking at a briefing this morning (May 9), FCA executive director of enforcement and market oversight Mark Steward, said: “We think this is a very significant case and a real wake up call for many IFAs across the country who think they can get away with lax KYC, not only with their customers, but with people who are outside the regulator's perimeter.
“There are some real lessons to be learned here, which is why we want this decision to be understood loud and clear.”
In the decision published on Friday (May 6), the tribunal made some observations on some of the client files and experiences that the clients had.
It found the directors did not consider the actual circumstances of the customers such as looking at whether they were ill or unemployed or if there had been any bereavements.
“We think that's a very, very valuable and helpful appendix that the tribunal has added to the judgment itself with some really pertinent comments about the failures of the advisers in this case. We really do hope that the lessons of this decision are heard loud and clear across the industry.”
These customers had been referred to the firms by Hennessy Jones which was also involved in designing the pension advice process used by these firms.
Although consumers have now been compensated by the Financial Services Compensation Scheme, the FCA said as well as the negative impact on consumers, this also affected other firms which have to contribute to the costs of the FSCS.
The tribunal found that all the five individuals allowed their “instincts and values to be overridden” and their judgment to be compromised for personal financial gain.
The regulator said the directors “failed to scrutinise” where their customers’ pension funds were being invested and this has led to very large penalties being imposed for directors of small IFA firms.
Steward said: “No reputable financial adviser should recommend that people put their entire pension savings in high-risk investments.
“Customers were misled into believing that they would get independent and impartial advice, but their interests were reprehensively betrayed in this case. This case also places firms’ relationships with unauthorised introducers in the spotlight.”
Steward added: “All firms should pay heed and scrutinise these relationships to ensure standards of integrity, due diligence and fair treatment of customers are uppermost.”
In the briefing, he said the regulator is going to be “very keen" for its supervisory work to ensure that IFA’s understand this decision, particularly in respect to the way in which they deal with introducers.
“In many respects, it is an inevitable part of the way in which the industry is structured that contains not only the same set of problems here but can also create situations that cause harm or detriment to the customers,” he said.
“The tribunal makes the point rightly, based on the allegations made, that firms that employ introducers need to ensure that those introducers are behaving properly. They need to conduct appropriate levels of due diligence on the introducers themselves before they use them. If they don't, then they themselves might be responsible for the shortcomings.
“The second thing is, I think some of the points the tribunal makes in this case about the inadequacies in the way in which the IFA is conducted Know your customer (KYC) for these customers, is enormously important.
“To make only generic and inquiries based on the category of customer targeted by the process, which is what the tribunal said, is below the standard and that message needs to be spread across the industry as well.”
He argued that IFAs need to personalise the KYC process to really understand who that person is, what their financial position really is, and what their needs really are.
The investigation
The FCA initially issued its decisions on December 6,2018 and the individuals and firms were: Aiden Henderson of Henderson Carter Associates, Andrew Page and Thomas Ward of Financial Page and Tristan Freer and Robert Ward of Bank House Investment Management.
Around £76.5mn of customers’ pensions was switched into self-invested personal pensions with unsuitable underlying investments.
This impacted 2,004 customers with an average pension pot of £38,000. Ultimately, more than £50mn of compensation fell to the FSCS.
FTAdviser understands virtually all of the customers had modest incomes with small pension pots, and some were particularly vulnerable.
One customer was a road sweeper with an income of £13,000, who was relying on his pension pot for his retirement income.
Customers were introduced to the firms through HJL and the individuals claimed that their pension advice service offered bespoke, independent advice which had considered products available across the whole market.
However, instead, it was a semi-automated process, designed to result in customers being recommended to switch their pensions to a Sipp with underlying high-risk investments, which HJL had a significant financial interest in.
The tribunal said that “in essence, the IFAs lent their name to HJL’s distribution process and, in effect, provided a veneer designed to give the impression that a truly independent service was being provided.”
It described these failings as “among the most serious that we have encountered in respect of a small IFA firm”.
It found that the individuals “acted recklessly” by allowing their firms “to adopt a seriously flawed business model” and “acted dishonestly in misrepresenting the features of that model to a large number of unsophisticated customers, causing serious harm to those investors”.
sonia.rach@ft.com
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