“In FCA v Seiler[2024] EWCA Civ 852 at [51], Fraser LJ explained that on a reference ‘the Authority is engaged in a common enterprise with the Upper Tribunal in ensuring that the objects of the legislation are achieved and that public confidence is maintained in the integrity of financial markets, with those who are not fit and proper persons prohibited from engaging in regulated activity’. In terms of the ‘objects of the legislation’, the Authority’s statutory objectives, set out in s.1B(3) FSMA, include securing an appropriate degree of protection for consumers and protecting and enhancing the integrity of the UK financial system.”
“an approved person must act with integrity in carrying out his accountablefunctions”
“An approved person must act with due skill, care and diligence in carrying out his accountable functions”
“an approved person performing an accountable higher management function must take reasonable steps to ensure that the business of the firm for which they are responsible in their accountable function complies with the relevant requirements and standards of the regulatory system.”
“In assessing compliance with, or a breach of, a Statement of Principle, the FCA will look at all the circumstances of a particular case. Account will be taken of the context in which a course of conduct was undertaken, including the precise circumstances of the individual case, the characteristics of the particular accountable function and the behaviour to be expected in that function.”
“An approved person will only be in breach of a Statement of Principle where he is personally culpable. Personal culpability arises where an approved person's conduct was deliberate or where the approved person's standard of conduct was below that which would be reasonable in all the circumstances...”
“…a personal recommendation is a recommendation– (a) made to a person in their capacity as an investor or potential investor…; (b) which constitutes a recommendation to them to do any of the following (whether as principal or agent)– (i) buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security or a relevant investment; or (ii) exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment; and (c) that is– (i) presented as suitable for the person to whom it is made; or (ii) based on a consideration of the circumstances of that person.” (i) buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security or a relevant investment; or (ii) exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment; and (i) presented as suitable for the person to whom it is made; or (ii) based on a consideration of the circumstances of that person.”
“Although most advisers and investment managers consider a customer’s attitude to risk when assessing suitability, many fail to take appropriate account of their capacity for loss.”
“The information regarding a client’s knowledge and experience in the investment field includes, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, information on: (1) the types of service, transaction and designated investment with which the client is familiar; (2) the nature, volume, frequency of the client’s transactions in designated investments and the period over which they have been carried out; (3) the level of education, profession or relevant former profession of the client.”
“If a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client or take a decision to trade for him.”
“The suitability report must, at least: (1) specify the client's demands and needs; (2) explain why the firm has concluded that the recommended transaction is suitable for the client having regard to the information provided by the client; and (3) explain any possible disadvantages of the transaction for the client.”
“19.1.1R: If an individual who is not a pension transfer specialist gives a personal recommendation about a pension transfer or pension opt-out on a firm's behalf, the firm must ensure that the recommendation is checked by a pension transfer specialist. 19.1.2R: A firm must: (1) compare the benefits likely (on reasonable assumptions) to be paid under a defined benefits pension scheme [or other pension scheme with safeguarded benefits] with the benefits afforded by a personal pension scheme or stakeholder pension scheme [or other pension scheme with flexible benefits], before it advises a retail client to transfer out of a defined benefits pension scheme [or other pension scheme with safeguarded benefits]; (2) ensure that that comparison includes enough information for the client to be able to make an informed decision; (3) give the client a copy of the comparison, drawing the client's attention to the factors that do and do not support the firm's advice [in good time, and inany case] no later than when the key features document is provided; and (4) take reasonable steps to ensure that the client understands the firm's comparison and its advice. 19.1.3G In particular, the comparison should: (1) take into account all of the retail client's relevant circumstances; (2) have regard to the benefits and options available under the ceding scheme and the effect of replacing them with the benefits and options under the proposed scheme; (3) explain the assumptions on which it is based and the rates of return that would have to be achieved to replicate the benefits being given up; and (4) be illustrated on rates of return which take into account the likely expected returns of the assets in which the retail client's funds will be invested; [and (5) where an immediate crystallisation of benefits is sought by the retail clientprior to the ceding scheme’s normal retirement age, compare the benefitsavailable from crystallisation at normal retirement age under that scheme].”
“When a firm compares the benefits likely to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme (COBS 19.1.2R (1)), it must: (1) assume that: (a) the annuity interest rate is the intermediate rate of return appropriate fora level or fixed rate of increase annuity…”
“I know my work causes major concerns for most people and need to work with someone who can understand what I do, how I do it and why it is safe”
“You asked me about oversight and I confirmed that my agreement with the FSA is that I do my own under HDC, because of course my client firms do not have the qualifications to enable them to do so. You have appointed a Compliance specialist and he has a consultant who can undertake specialist supervision of a PTS. I think you need, for your own security and peace of mind, to arrange for separate formal visits to HDIFA as an AR… I know my systems and processes are structured [and] robust and each case is individually formally signed off. However I would appreciate a second expert opinion and accept that this should form part of the costs being met out ofthe commission share or payaway HDIFA makes to FSML.”
“It has been brought to the FSA’s attention that some financial advisers are giving advice to customers on pension transfers or pension switches without assessing the advantages and disadvantages of investments proposed to be held within the new pension. In particular, we have seen financial advisers moving customers’ retirement savings to self-invested personal pensions (SIPPs) that invest wholly or primarily in high risk, often highly illiquid unregulated investments (some which may be in Unregulated Collective Investment Schemes). Examples of these unregulated investments are diamonds, overseas property developments, store pods, forestry and film schemes, among other non-mainstream propositions.”
“…under the mistaken impression that this process means they do not have to consider the unregulated investment as part of their advice to invest in the SIPP and that they only need to consider the suitability of the SIPP in the abstract. This is incorrect. The FSA’s view is that the provision of suitable advice generally requiresconsideration of the other investments held by the customer or, when advice is given on a product which is a vehicle for investment in other products (such as SIPPs and other wrappers), consideration of the suitability of the overall proposition, that is, the wrapper and the expected underlying investments in unregulated schemes. It should be particularly clear to financial advisers that, where a customer seeks advice on a pension transfer in implementing a wider investment strategy, the advice on the pension transfer must take account of the overall investment strategy the customer is contemplating.”
“You specifically asked about what I would do when meeting with "clients". I presume that you mean investors or consumers. As a general rule I do not meet with consumers. Our clients are the adviser firms with whom we work…I have never been involved in any investment advice for any of my adviser clients. On the odd occasion where I am included in a client meeting it is always made clear I do not give investment advice. My role is technical pensions support.”
“Pension Transfer Specialists ‘We can help you access a lucrative source of business, safely and effectively’ Heather Dunne ACII FPFS Chartered Financial Planner This document is designed for professional introducer’s [sic] only, not direct clients and as such is not compliant with Financial Conduct Authority (FCA) requirements for direct advice”
“We offer Pension Transfer support to financial advisers; enabling them to arrange transfers from Occupational Pension Schemes efficiently and professionally under their own name. Our services enable Adviser Firms to access this lucrative market safely Very few other firms offer these services; most operate on a referral basis. We have worked in this way for over ten years. We look at the individual circumstances of each case to enable us to make a positive recommendation in accordance with regulatory requirements. We look for a reason to transfer, rather than a reason not to We work closely with our adviser clients. We help them so they can spend more time with their clients, improving and strengthening the relationship. Our role is to complete the background work, enabling them to meet client needs. Our process reduces our adviser clients’ risk; not only at outset, but also in the longer term… HDC contracts out Heather Dunne as Pension Transfer Specialist (PTS) when required. Heather is therefore recorded on the Financial Conduct Authority (FCA) website under her own reference number HID00002 as an adviser for several firms. This includes Heather’s own firm HDIFA, which isauthorised to arrange pension transfer on a referral basis i.e. when introduced by advisers. Heather Dunne is a Pension Transfer Specialist for several firms You will have access to Heather’s expertise via HDC. HDC offers a full research, support and report writing facility to advisers. All advice will be provided under the auspices of your own firm but we will be there to support you in the process.”
“We will gather the data regarding the scheme(s) and prepare the report using the details you have provided, together with any additional guidance you have given us. We will include details of the new provider and associated investments in our draft report, if you provide them. In the absence of that information, our recommendation for the investments will be Cash.”
“The Firm generally has good robust processes and procedures that all the staff appear to understand and adhere to in their function of supporting Heather. Compliance as a culture is better embedded here than in many firms we have visited and this should be a source of pride for Heather. There are some fairly fundamental errors in evidence that are often experienced in entrepreneurial ventures that are maturing and these are often around the governance and compliance, version controls and legacy advertisements. A further point to be aware of is regulatory developments for authorised firms, not just pension transfer business needs to be observed and applied as required. Although not specifically tested during the onsite visit, neither was it any way referred to.”
“[Mr Werrell] undertook a cursory review and spent the majority of his visit explaining the benefits of LinkedIn. The majority of his comments were not relevant and I did not find his suggestions in any way helpful so it was not a request I made again.”
“Complainant believed he received advice (to transfer the value of preserved occupational pension scheme benefits to a Liberty SIPP) from [name of IFA]. Liberty SIPP confirmed that the application was submitted by Heather Dunne.”
“As you know Heather Dunne of HD IFA is an appointed representative of Financial Solutions Midhurst Limited and as such we have fully investigated the complaints raised by Mr H and Mr T in respect of their investments within the SIPPS established with [receiving scheme].”
“I should add that HD IFA only provides advice around the suitability, or not, to transfer deferred benefits with a DB scheme to an alternative pension structure and does not provide any investment advice as that remains the responsibility of the introducing IFA. As such, having also sought guidance from our external compliance consultants, CEI Compliance Limited, and our PI Insurers, both concur with my understanding that HD IFA do not have any complaint to answer to and this is why the matter has been passed over to [the IFA].”
“Further, as a separate matter and in line with our ongoing compliance oversight of HD IFA, the complaints have led us to make further enhancements to the systems and controls in place particularly surrounding the types of introductions and the credentials of IFA firms introducing to HD IFA. We are already working with our compliance consultants and HD IFA, (a process we started in April 13) to ensure the systems and controls HD IFA uses continue to robustly manage the ‘risks’ associated with in this advice area.”
“I note that you have carried out an investigation to establish the apportionment of liability with these complaints. I don't really have anything to add here, except that I note that you appear to be striving to continuously improve your processes and have attempted to forestall any similar complaint in the future.”
“I stand by my assertion that a client has a responsibility to read documents before signing them and pointing out if they are incorrect or inaccurate”. (3) Mr Fenech told Ms Dunne he was changing his compliance support firm; she responded by saying that she “would really like for them to review our HDIFA systems and processes and see if there is anything we should be adding. It would be good if they could add some input into the reports and actual advice...”
“We are alerting firms to our requirements when they give advice on self-invested personal pensions (SIPPS), giving our view and key messages. We also set out the failings we have encountered, which firms in this marketshould carefully consider.”
“On18 January 2013 , we outlined our concerns that firms were advising on pension transfers or switches to SIPPs without assessing the advantages and disadvantages for customers of the underlying investments to be held within the new pension arrangement.”
“Where a financial adviser recommends a SIPP knowing that the customer will transfer or switch from a current pension arrangement to release funds to invest through a SIPP, then the suitability of the underlying investment must form part of the advice given to the customer. If the underlying investment is not suitable for the customer, then the overall advice is not suitable. If a firm does not fully understand the underlying investment proposition intended to be held within a SIPP, then it should not offer advice on the pension transfer or switch at all as it will not be able to assess suitability of the transaction as a whole…”
“This report summarises our recent thematic research on pension transfer advice processes where ETVs were offered. It is not general guidance on the operation of our rules. This review is primarily aimed at financial advisers who provide ETV pension transfer advice and their senior management. Our findings will also be of interest to financial advisers who provide any pension transfer advice to consumers who are DB pension scheme members, and to pension trustees, and employers with DB schemes.”
“…a disclosure failing would typically arise from some form of process or information provision failing. While we would expect firms to ensure that they make the correct disclosures, a disclosure failing would not necessarily result in a suitability failing where there is no material impact on the outcome for the member.”
“•The TVAS and KFI were not tailored to the member’s specific circumstances (i.e. spouses’ age, preferred retirement age, actual fund, annual management charges) and this was not explained to the member. • Because the assumptions were incorrect, this significantly understated thecritical yield, leaving members with a false impression of the return requiredto match the benefits of the ceding scheme. • The inputted TVAS data (e.g. fund charges) was incorrect which led tomaterially misleading reports.”
“All financial advisers who provide pension transfer advice, including where ETVs are offered, should consider: • the FCA Handbook requirements; • the relevant guidance; • findings in this paper and the examples of good and poor practice provided below; and • review their arrangements accordingly. We would expect firms to ensure that any pension transfer advice is sufficiently robust to meet our requirements.”
“Following the alerts you published (January 2013 and April 2014) about pension switches/transfers into unregulated products through SIPPs, we could like to bring the following arrangement to your attention. The consumer had deferred benefits in an occupational pension scheme. He completed a fact find with Heather Dunne IFA Limited, a member of Financial Solutions Midhurst. This recorded that they were advising on the transfer to the ‘[name] SIPP’, but not on the subsequent investment of the SIPP. The transfer went ahead and a significant proportion of the SIPP was invested in property related fixed interest bonds on the advice of [the IFA] in connection with [name] (an unregulated business). The property bond investment cannot be sold - resulting in lower tax free cash being paid to the member. Heather Dunne IFA says that they knew nothing about the investment plans and that it is [the IFA], in connection with [name] that advised where the SIPP should be invested.”
“[Mr T’s] complaint concerns the advice that he received in October 2012 from Financial Solutions Midhurst Limited to transfer the value of his deferred pension benefits in a former employer’s pension scheme into a Self-Invested Personal Pension Plan (SIPP) and to then invest a significant proportion of his total pension provision in unquoted shares in [name] Hotels Limited.”
“The business had previously stated that the complaint should be against the advisers who had recommended the investment within the SIPP…the business…said they were not responsible for the advice [Mr T] received to make the investment within his pension and that they were not aware of the specific investment.”
“In my opinion the business should have investigated the investment plans that [Mr T] had for his SIPP as in my opinion it would not be possible to advise on the transfer and not consider where the funds were to be invested. Investments in the hotel were high risk and the business should have warned [Mr T] that they could be potentially difficult to sell if he needed to realise some of the investments in the near future to pay either the SIPP fees or the benefits that he wanted to take on his 55th birthday.”
“File assessments 100% of the next four cases to be submitted prior to issue of Suitability Report; Assessment of file assessments based on the above reviews; Minimum of 10% of business conducted to be reviewed.”
“Fit and proper test: I am not satisfied that FSML would be able to comprehensively demonstrate to the regulator that you are deemed fit and proper, notwithstanding the information you have provided, you will note under Option 1 that there is a considerable amount of work which would need to be undertaken swiftly in order to ensure fit and properness can be comprehensively demonstrated. Regulatory risk: I continue to be very concerned with the risk associated with your business model, which is totally dependent upon introduced business from IFAs and other advisory firms where there would appear to be very little vetting procedure…”
“When advising a retail client who is, or is eligible to be, a member of a defined benefits occupational pension scheme whether to transfer, a firm should start by assuming that a transfer will not be suitable. A firm should only then consider a transfer or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer or opt-out is in the client’s best interests.”
“Transfer advice cannot be given in isolation. See FCA Fact Sheet. Investment advice must be considered by HD but then the agency is transferred to the referring firm [links to the 2013 and 2014 Alerts].”
“You have said that transfer advice cannot be given in isolation and referred me to the FCA Factsheet. I have discussed my model with the regulator on numerous occasions since HDIFA started trading in 2007. They have confirmed that as long as it is perfectly clear who is undertaking which portion of the advice they have no concerns about us undertaking a transfer into a SIPP bank account, where the investment portfolio by another authorised adviser. The two documents you refer me to, relate to transfers, where the subsequent advice is undertaken by non‐authorised advisers into un‐regulated investments. We don't operate in that market. All of our introducers are themselves authorised advisers registered with the Financial Conduct Authority. We did accept a handful of referrals from non-authorised firms before January 2013, when the rules were changed. Based on my own investigations with the regulator, and allowing for the fact the presentation is made to authorised advisers, I will not be changing this wording.”
“…in respect of your business model, your response is confounding for a number of reasons. Who from the FCA has written to you and confirmed that you can separate the advice on investments and transfers? I would like a copy of the letter and confirmation that the regulatory alerts that I sent to you do not apply and why they don't apply… With regard to the presentation providing it is in the name of HDC and there is no reference to HD (or if the name is changed, to HDIFA) or FSML in the slides or notes or by you, you can say what you like. But absolutely no reference can be made to FSML.”
“The regulator has made it clear they do not work on a prescriptive basis, they expect us to use our intelligence to interpret the handbook in a sensible manner. They appreciate that each individual client is just that – an individual and that they like advisers need to be treated as such. The two regulatory alerts you refer to, specifically deal with non‐regulated investments, being sold by individuals who are not authorised advisers. My discussions were with Neil Chipperfield and Robert Stimson. One was before those updates were issued and the second conversation with Neil Chipperfield was after the Financial Conduct Authority replaced the Financial Services Authority. The conversation with Robert Stimson was actually with regard to the [Mr T] case. The Financial Ombudsman Service works to an entirely separate set of rules. FOS has already found me liable for advice given by another adviser. In that case, they did not abide by their own internal rules nor those imposed on them in relation to processing complaints. They ignored the fact the client had not actually made a complaint about me, the transfer or even the investment. The fact the client had taken money illegally, from a non‐authorised firm was also overlooked. Furthermore, they ignored the facts of the case itself and the client's requirements. They found me liable because I'm still authorised and the other adviser is no longer in the industry. Also, the network he belonged to was somewhat larger than me.”
“No doubt, you will point out that the Critical Yield will be affected by the underlying investments. That is why we assess the Critical Yield on a nil charge nil Adviser Remuneration basis. We are trying to use the Critical Yield to do what the regulator invented it for; to assess whether or not the transfer value is actually reasonable in relation to the benefits being promised within the scheme. By stripping out costs and charges of the alternatives, we can get to an accurate assessment. The regulator made it clear that the decision regarding a transfer should not be based purely on the critical yield nor should any other factor be given undue reliance. In other words, the Critical Yield is no more and no less significant than any of the other “soft facts”
“When you have decided which files you wish to review, please let me know and I will arrange for them to be sent to you”
“If charges are not included when assessing critical yield, the critical yield will necessarily be understated…if critical yields are being understated, it gives rise to a risk that customers do not know the actual critical yield when they make their investment decision…and that gives rise to a risk of non-compliant advice.”
“I am astounded that you believe it is acceptable for you to transact a piece of business that is wholly inappropriate for the client, as has been deemed by the ombudsman, and expect FSML to carry the full cost which is loss-making for FSML.”
“I have previously referred on numerous occasions to my exchanges with the financial services authority and financial conduct authority in relation to our advice process. It was something I specifically referred to when undertaking a series of exchanges with Julian Ellis in relation to his reviewing my seminar slides. I attach a copy of my email of 4 January, 2015 in which I refer specifically to both contacts at the regulator. Richard [Fenech] is also aware of a series of conversations I had with Robert Stimson from the Financial Conduct Authority in relation to the complaints by [Mr H and Mr T]. It was during those various discussions that Robert confirmed that he fully understood the investment advice was undertaken by a separate firm. Again, I attach copies of the email exchanges at that time (July 2013). During those exchanges, I refer to previous exchanges with Neil Chipperfield. To evidence that I attach a further email from April 2013 in that respect. You will see that does also referred [sic] to a conversation in January 2013. That so happened to coincide with the regulatory update, which is why it was something I talked to Neil about when he contacted me in respect of [the firm for which Ms Dunne was previously a PTS]. I think you will find that Julian Ellis has also spoken with both gentlemen from the Financial Conduct Authority, because I am pretty certain I recall he said as much to me in a conversation at some point. I hope that this combination of documentation is sufficient evidence to confirm that the regulator is comfortable with the transfer advice being distinct from the investment advice so long as the investment advice is undertaken by an authorised party.”
“I have no problem with Julian [Ellis]…reviewing a sample of cases…I have no concerns on this front and actually welcome the opportunity to have an expert opinion. I had understood that Julian would be arranging something along those lines last year. Similarly I had fully expected Julian to undertake regular reviews. I am therefore quite comfortable with him visiting me quarterly. I have copied in [names of HDC employees], who will organise the appointments and provision of files once you are ready to go ahead.”
“I am mindful that HDIFA does not provide the ultimate investment recommendation to the end retail client and that on transfer funds are allocated to cash and then the agency transferred back to the introducing regulated IFA firm. However, the regulator has made it absolutely clear that we have a duty of care to ensure that the ultimate investment is suitable to the client and forms part of the overall transfer advice process. Therefore with immediate effect, we will look at a process to review the existing HDIFA advice process in order to ensure that, whilst HDIFA is not providing the investment advice, there is satisfactory recognition of it to the extent that HDIFA can be comfortable in principle that the intended investment to be recommended by the introducing IFA is indeed appropriate and suitable to the client.”
“I remain satisfied that HDIFA has no responsibility for undertaking the investment advice, that is organised arranged and advised upon by the introducing adviser who retains long‐term responsibility for the clients retirement needs.”
“I appreciate that you are concerned about the ultimate investment recommendation. You are well aware of my view that the regulator's requirement to ensure the investment recommendation is suitable is adequately covered because the introducing firm is fully authorised and undertakes the investment advice once they have taken over the agency of the new plan. If HDIFA starts to investigate further into the intended investment and assess whether or not it is appropriate or suitable for the client, that will make the current distinct advice process blurred and personally I believe make HDIFA more responsible for subsequent investment advice.”
“I remain extremely concerned that by commenting on investment HDIFA will be perceived to have been involved in the recommendations. Furthermore if we are to assess their suitability to enable us to comment, we will need to undertake an investment based attitude to risk and obtain the appropriate systems and processes to make investment recommendations. We simply don't have that expertise. Finally as we are not being paid for that or the ongoing advice and we are not going to undertake it, we would be opening ourselves up to liability without recompense or control… I have to also mention that I have asked my team whether they think we have details of the investment recommendation that the introducer adviser clients have made. They confirmed my view that it's extremely unlikely we have that information. We would have to contact each adviser and ask.”
“Rather than worrying about reporting to us on what you believe has been invested in normal investments (model portfolios, life office pension funds, acquisition of commercial property or appointed to a discretionary manager), maybe the focus can be on those that are not normal investments?”
“My current Principal [FSML] has sought advice from a compliance firm [Mr Ellis]. They are convinced that as your alerts refer to the requirement to consider the ongoing investment I must be liable for the investment advice even though it was, recommended, arranged and transacted by an entirely separate authorised firm. I have tried to rebut this based on my previous discussions with Robert Stimson and Neil Chipperfield, both of whom are senior staff at both the Financial Conduct Authority...”
“In my conversation today [with the FCA] I was advised again that the investment advice can be separate to the transfer advice if the two firms are formally authorised and the position is clear to the consumer. They are and it is. Please can you confirm in writing for the record that this is the case.”
“…please note that the firm is asking us to confirm things that we in the CCC believe is outside of our remit and a judgement call we cannot make. Equally, the firm is seeking the FCA's views in order to help her fight current/future claims against her firm. The firm should be having a conversation with the FOS who ultimately would hold them liable for these cases.”
“The main issue is how was the know your client information gathered and by whom. How does the know your client information reflect on the retirement plans of the individual concerned and therefore provide the basis on which to assess the suitability of a transfer from a final salary scheme (and indeed other money purchase schemes) to a SIPP? What challenges were undertaken by HDIFA in relation to the know your client information? How was the clients attitude to risk assessed against a transfer from defined benefit to a definedcontribution scheme? With regard to cases completed after January 2013, what assessment was taken to understand the FSA alert regarding the use of UCIS [Unregulated Collective Investment Schemes] in SIPPs? HDIFA has denied responsibility for investment as has the regulated introducer. Whether FOS would agree is another matter. What checks were undertaken by HDIFA in relation to how the client was getting investment advice?”
“We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed. Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. So it is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether or not to proceed.”
“We expect a firm advising on a pension transfer from a defined benefit (DB) scheme or other scheme with safeguarded benefits to consider the assets in which the client’s funds will be invested as well as the specific receiving scheme. It is the responsibility of the firm advising on the transfer to take into account the characteristics of these assets. Our rules set out what a firm must do in preparing and providing a transfer analysis. In particular, our rules (COBS 19.1.2R(1)) require a comparison between the benefits likely (on reasonable assumptions) to be paid under a DB scheme or other scheme with safeguarded benefits and the benefits afforded by a personal pension scheme, stakeholder scheme or other pension scheme with flexible benefits. The comparison should explain the rates of return that would have to be achieved to replicate the benefits being given up and should be illustrated on rates of return which take into account the likely expected returns of the assets in which the client’s funds will be invested. Unless the advice has taken into account the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet our expectations (see guidance at COBS 19.1.2 and 19.1.6-19.1.8).”
“I am well aware that the regulator will not specifically state what is or what is not acceptable, but will purely provide guidance. Therefore, I have to assume that my interpretation fits within the parameters of that guidance unless you advise me otherwise.”
“In your note you expand on both your business model and approach. The FCA does not approve individual business models and it is the responsibility of firms to ensure their systems and processes are robust, effective and consistent with our expectations. Therefore this email should not be considered approval of your organisation’s approach to fulfilling its regulatory obligations, although we note that you have taken steps to consider the contents of our alert and what this means for your firm.”
“The data has been sent separately via Special Delivery using an encrypted flash drive. When this is received, you will need to phone the office and request the password which will be provided to you verbally.”
“It is my belief the technical content of the files is well documented, very complete information appears to have been requested and received from the scheme and all of this used to assess the benefits on offer and the suitability of the transfer. The files are consistent and demonstrate a repeatable process has been completed, there is also a good level of accuracy within the documentation. There is evidence of robust checks being undertaken by Heather prior to the initial report and again prior to the suitability report, this demonstrates good practice.”
“…the objectives I have seen on the files reviewed are often generic, the client wants improved death benefits and flexibility. These need to be more specific, why better death benefits, why flexibility what does the client have planned that means these features are important to them…In all the reports I was left with questions about the client’s objectives, how much do the clients anticipate needing in retirement, are there other assets that will help out, why do they feel flexibility is important to them. What objective does transferring now meet rather than waiting for a time nearer retirement when they will have a clearer understanding of their needs in retirement and how much flexibility they will need…”
“there is no mention on your files of the investment strategy and the TVAS is run with either nil charges or just the product charge and the cash fund charge. I did not locate an assessment of the likelihood of the return overcoming the required critical yield taking into account all the product charges, advice charges and fund charges that will be borne by the client.”
“Whilst I do feel the case meets the needs of the clients, the regulator’s stance is that unless the TVAS has taken into account full charges and the plausibility of the Critical Yield being met has been assessed in the context of the new investments it is unlikely that DB advice will be found as suitable.”
“the issues we have identified from the file review sample are a result of systemic flaws in the firm’s advice process and that there is a risk of customer harm having occurred as a result of the firm’s failure to follow a compliant process.”
“Defined Benefit pensions, and other safeguarded benefits involving guaranteed pension income, provide valuable benefits so most consumers will be best advised to keep them. However, we recognise that the economic and legislative environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and properly considers the various options now available to them. We want to provide advisers with a framework which better enables them to give the right advice so that consumers make better informed decisions.”
“Our new approach builds on the rules and guidance which are currently already in place for advice of this nature including our recent pension transfer alert. The clarity provided by this consultation should better equip advisers to give the right advice.”
“2.2 Our policy intention in relation to the transfer of safeguarded rights remains unaltered. We aim to ensure that consumers receive good quality advice in order to allow them to make informed decisions. However, in the changed environment, our existing rules might not be the most effective way to achieve that policy intent. The current rules do not explicitly allow for the variety of options available to members under the pension freedoms. In addition, we are aware that advice has become focused on the transfer value analysis (TVA) output rather than making a rounded assessment of suitability. There is also an increased perception that the availability of advice is limited because advisers are cautious about advising on pension transfers. 2.3 We are taking this opportunity to re-state the starting assumption when advising on a transfer of safeguarded benefits, and clarifying that the onus is on the adviser to prove that a transfer is in a client’s best interests. This does not represent a softening of our approach, but makes it clear that is essential for an adviser to demonstrate that an individual will benefit from giving up a valuable pension.”
“Taking everything together, we believe that the changes in the pensions environment mean that the current TVA is no longer leading to the best outcomes for consumers, and advisers are often focusing too much on this analysis when advising in this area. We therefore propose to replace TVA with an overarching requirement to undertake appropriate analysis of the client’s options. We will refer to this as the ‘appropriate pension transfer analysis’ or APTA. Part of this process will be the inclusion of a prescribed comparator providing a financial indication of the value of benefits being given up.”
“Although it is our current expectation that when undertaking TVA firms should take account of the charges incurred in the receiving scheme, this is not currently explicit in COBS 19.1. We therefore propose adding explicit requirements on the charges to be included in an APTA, including the TVC, as follows: • the inclusion of relevant product, platform and adviser charges….”
“An appropriate pension transfer analysis must take account of all charges that may be incurred by the retail client as a result of a pension transfer or pension conversion and subsequent access to funds following such a transaction, other than: (1) adviser charges paid by a third party (e.g. an employer); and (2) adviser charges that would be payable whether the pension transfer or pension conversion happened or not.”
“The charges in COBS 19 Annex 4A 3R include, but are not limited to, any of the following: (1) product charges, including those on any investments within the product; (2) platform charges; (3) adviser charges in relation to the personal recommendation and subsequently during the pre-retirement period as well as at benefit crystallisation and beyond, where likely to be relevant; and (4) any other charges that may be incurred if amounts are subsequently withdrawn.”
“(1) The guidance in this section relates to the obligations to assesssuitability in COBS 9.2.1R to 9.2.3R. (2) Where a firm is making a personal recommendation for a retail client who is, or is eligible to be, a member of a pension scheme with safeguarded benefits and who is considering whether to transfer, convert, or opt-out, a firm should start by assuming that a transfer, conversion or opt-out will not be suitable. (3) A firm should only consider a transfer, conversion or opt out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer, conversion or opt-out is in the retail client's best interests. (4) To demonstrate (3), the factors a firm should take into account include: (a) the retail client’s intentions for accessing pension benefits; (b) the retail client’s attitude to, and understanding of the risk of giving up safeguarded benefits (or potential safeguarded benefits) for flexible benefits; (c) the retail client’s attitude to, and understanding of investment risk; (d) the retail client’s realistic retirement income needs including: (i) how they can be achieved; (ii) the role played by safeguarded benefits (or potential safeguarded benefits) in achieving them; and (iii) the consequent impact on those needs of a transfer, conversion or opt-out, including any trade-offs; and (e) alternative ways to achieve the retail client’s objectives instead of the transfer, conversion or opt-out.” (a) the retail client’s intentions for accessing pension benefits; (b) the retail client’s attitude to, and understanding of the risk of giving up safeguarded benefits (or potential safeguarded benefits) for flexible benefits; (c) the retail client’s attitude to, and understanding of investment risk; (d) the retail client’s realistic retirement income needs including: (i) how they can be achieved; (ii) the role played by safeguarded benefits (or potential safeguarded benefits) in achieving them; and (iii) the consequent impact on those needs of a transfer, conversion or opt-out, including any trade-offs; and (e) alternative ways to achieve the retail client’s objectives instead of the transfer, conversion or opt-out.”
“Ms Blaak: Did you understand Mr Ellis' concerns about you not taking, sort of, the final destination of the pension, of the funds into account when assessing the suitability of a pension transfer? Ms Dunne: I did because it was a concern that was levied to me relatively frequently, because everybody else interpreted it differently. Just because I interpreted it differently to the rest of the market doesn't mean I waswrong.”
“(1) A regulator may take action against a person under this section (whetheror not it has given its approval in relation to the person) if— (a) it appears to the regulator that he is guilty of misconduct; and (b) the regulator is satisfied that it is appropriate in all the circumstances to take action against him. (1A) For provision about when a person is guilty of misconduct for thepurposes of action by a regulator— (a) see section 66A, in the case of action by the FCA, and… (3) If the regulator is entitled to take action under this section against a person, it may do one or more of the following (a) impose a penalty on him of such amount as it considers appropriate;… (4) A regulator may not take action under this section after the end of the relevant period beginning with the first day on which the regulator knew of the misconduct, unless proceedings in respect of it against the person concerned were begun before the end of that period. (5) For the purposes of subsection (4)– (a) a regulator is to be treated as knowing of misconduct if it has information from which the misconduct can reasonably be inferred; and (b) proceedings against a person in respect of misconduct are to be treated as begun when a warning notice is given to him under section 67(1). (5ZA) “The relevant period” is— (a) in relation to misconduct which occurs before the day on which thissubsection comes into force, the period of 3 years, and (b) in relation to misconduct which occurs on or after that day, the periodof 6 years.” (a) it appears to the regulator that he is guilty of misconduct; and (b) the regulator is satisfied that it is appropriate in all the circumstances to take action against him. (a) see section 66A, in the case of action by the FCA, and… (a) impose a penalty on him of such amount as it considers appropriate;… (a) a regulator is to be treated as knowing of misconduct if it has information from which the misconduct can reasonably be inferred; and (b) proceedings against a person in respect of misconduct are to be treated as begun when a warning notice is given to him under section 67(1). (a) in relation to misconduct which occurs before the day on which thissubsection comes into force, the period of 3 years, and (b) in relation to misconduct which occurs on or after that day, the periodof 6 years.”
“The Authority considers that it could reasonably infer from that email that HD’s transfer advice did not consider matters arising from the investment advice (such as advisor fees or product charges) because she was suggesting that the investment advice was not given until after she had given transfer advice.”
“When advising on the conversion or transfer of safeguarded benefits, our current rules require advisers to make a comparison, commonly known as a transfer value analysis (TVA), between the benefits being given up and the benefits available under the receiving scheme. The analysis calculates the rate of return – often referred to as the critical yield – that is necessary to reproduce the safeguarded benefits being given up, assuming the purchase of an annuity is based on the same benefits.”
“The whole purpose of looking at a transfer is not to provide the same level of benefits at the same point in the same format, it’s to be able to provide benefits in a different format, in a different shape, which is more suitable to the client's…objectives.”
“The concept of a critical yield is not widely understood by consumers, many of whom have no or limited experience of investments.”
“As alternative options to annuities have developed, following the introduction of the pension freedoms, the way in which the TVA is presented to consumers has been extended by firms. Frequently, consumers are shown numerous critical yields depending on how and when they might take their benefits. Critical yields are being presented for drawdown although there is no standard methodology for this approach.”
“Mr Chipperfield confirmed that, as long as it was clear who was responsible for which part of the advice, it was acceptable for me to review the transfer and the IA to make the investment recommendation.”
“Mr Pritchard: He didn't tell you, did he, that when giving your transfer advice you did not need to take into account the intended end investments? Ms Dunne: He did not tell me that when I undertook my transfer advice I had to take into account the intended underlying investments. He did not disagree with my explanation as to how I work.”
“Ms Dunne: I was explaining to him that my pension transfer advice was undertaken by me and the investment advice was undertaken by somebody else, and he had no -- he didn't say to me: well, you can't do that… Mr Pritchard: The Authority's case is you can have a two adviser model, but the transfer advice must take into account the overall investment proposition. Mr Stimson did not say anything to the contrary, did he? Ms Dunne: No, he didn't.”
“We will include details of the new provider and associated investments in our draft report, if you provide them. In the absence of that information, our recommendation for the investments will be Cash.”
“The regulator is not in the habit of confirming that specific individual processes are acceptable. That's just a general knowledge thing that we all in the industry know, they will not comment on a specific investment process or whatever.”
“It should be particularly clear to financial advisers that, where a customer seeks advice on a pension transfer in implementing a wider investment strategy, the advice on the pension transfer must take account of the overall investment strategy the customer is contemplating.”
“Where a financial adviser recommends a SIPP knowing that the customer will transfer or switch from a current pension arrangement to release funds to invest through a SIPP, then the suitability of the underlying investment must form part of the advice given to the customer. If the underlying investment is not suitable for the customer, then the overall advice is not suitable. If a firm does not fully understand the underlying investment proposition intended to be held within a SIPP, then it should not offer advice on the pension transfer or switch at all as it will not be able to assess suitability of the transaction as a whole.”
“the business should have investigated the investment plans that [Mr T] had for his SIPP as in my opinion it would not be possible to advise on the transfer and not consider where the funds were to be invested.”
“unfortunately for financial advisers, the Ombudsman has a different set of rules and requirements to the FCA. So the fact that the Ombudsman finds something at fault does not mean that we're not complying with the regulatory requirements. The Ombudsman has a much more discretionary assessment of a case.”
“Yes, that is reasonable. But if those reviewed previously are not being used in your assessment then the sample you draw will represent the population of all clients/files minus those already reviewed. You will just have to acknowledge this somewhere.”
“…our intention is to tailor our approach to sampling of the firms, reflecting the fact that some firms are already under investigation. In respect of those firms, we will identify a sample of files necessary to achieve 95% confidence to a 15% margin of error. However, we will undertake a phased approach in terms of actually obtaining and reviewing the files. Accordingly, we will initially obtain the first 20 files in the sample population, and will only obtain the remainder if we consider it necessary following that review.”
“we agreed that the next step would be for you look over those and decide whether there are firms for which it is difficult at present to draw a conclusion and where you will need a second sample so that the CI is narrowed.”
“the Authority was suggesting in cases where this sort of information was missing, then the information collection section was ‘not compliant’.” (2) On6 February 2020 , Mr Tom Baker, one of the Authority’s investigators into FSML, asked that two of the “suitable” files be reconsidered, because he considered the “suitable” ratings were “pretty marginal calls”; he was also “mindful that the firm is already in Enforcement”
“I’ve another question from Tom [Baker] about FS Midhurst. He has asked whether various recommendations should…be assessed as MIGs where there is no information about the receiving scheme. Are you able to check for me?” (7) That exchange was followed by a long detailed email from Mr Baker to Mr Brifcani, setting out his views on each of the cases which GT had assessed as “suitable”, and concluding “just so you understand my view of the files”. (8) Mr Brifcani responded that evening, saying inter alia: “this is a complex issue because there are some files where the missing information is considered more material to the assessment determinations (i.e. ratings) than others”, and adding that it would be necessary to consider the extent to which “materiality of the missing information should be a factor”. (9) On19 February 2020 , Ms Paton emailed Mr Brifcani, copying Ms Prestage as well as Mr Baker, Mr Hewitt and a Mr Nick Platten (all from the Authority). Ms Paton said that the recent case clinics on Ms Dunne “raise an issue about whether GT should have proceeded to assess suitability” where (a) Ms Dunne had no details of the receiving scheme or (b) although Ms Dunne had details of the receiving scheme, she did not know the underlying investments. Ms Paton said she and Mr Hewitt considered that “the assessors should have stopped at the first tab The tabs are explained in the section of this decision about the DBAAT, see §232. as all of these categories are major information gap cases” and proposed that GT reconsider all Ms Dunne’s cases and change those which had been assessed as “suitable” to “MIG” and so non-compliant. Under cross-examination by Mr dos Santos, Ms Prestage agreed that the Authority was here “giving a very clear steer to Grant Thornton”. (10) On3 March 2020 , Ms Paton set out a draft of the “steps for GT to take to review the TVAS information gap cases”
“This led to the results of the affected cases being changed, such that the original ‘suitable’ rating given to the pension transfer advice was removed, and the ‘information’ rating was changed to ‘Not compliant – material information gap’...”
“An important factor in our decision is that, of the 12 MIGs, 8 were originally assessed by GT as compliant for information collection and suitable for transfer advice. The outcomes for those files were changed to ‘MIG’ after discussion with GT of the effect of HDIFA’s failure to obtain information about the proposed arrangement. Therefore, broadly speaking, the issue inrespect of two thirds of the files is the same. If we do ask GT to review, we could formulate together a global response which applied to all 8 of those files (HD refers to FCA consultation papers etc in justifying her position re the proposed arrangement, so we might need to combine the expertise of GT, Enforcement and Policy…) and then ask GT to respond ‘as usual’ to the other four.”
“We spoke to GT briefly about [Ms Dunne] last week and their views were unchanged on the unsuitable files so we need to think carefully where we go from here. As you say points of policy can be dealt with internally. My gut feel is that we shouldn’t be sending this back to GT unless there are actually additional documents that look like they can plug the gap which seems unlikely.”
“If, instead, the confidence intervals had covered a range where the lower bound represented an acceptably small percentage of non-compliant instances of advice, but the upper bound represented an unacceptably high percentage, then it would be difficult to reach firm conclusions from the sample. Under this scenario a larger sample size would be needed. The possibility that the results from a small sample might prove to be ambiguous is why the initial advice I gave suggested taking a larger sample of 39 customer files and reviewing a random subset of around 20 of those files first. If the initial, smaller sample gave unambiguous results there would be no need to review the rest of the sample. But if the smaller sample gave ambiguous findings, carrying out a review across a larger sample would be a sensible way forward, so that the confidence interval narrows.”
“In 2019-2020, the Authority requested and assessed a statistically representative sample of 17 of HDIFA’s Pension Transfer files from the Relevant Period against the relevant rules in COBS (as in force during the Relevant Period) relating to suitability. The results of the Authority’s file reviews revealed the following: (1) Failure to collect the necessary information to give Pension Transfer advice in 100% of cases, with the consequence that in 71% of total cases the Authority was unable to assess whether Ms Dunne’s advice was suitable… (2) Ms Dunne gave unsuitable Pension Transfer advice in 100% of those cases it was able to assess for suitability…”
“Only five of the 17 files reviewed by the Authority were capable of being assessed for suitability. This was due to Ms Dunne’s non-compliant information collection practices. There were material information gaps in 12 of the 17 files reviewed.”
“What is clear is that there must be some sufficient relationship between the matter referred and the decision which triggers the right to refer, and the critical question is: what is required by the concept of sufficiency in this context? The answer is to be found in the fact that the decision is a stage in the regulatory process, and the Tribunal reference a further stage in that process. The logical answer is therefore that something is sufficiently related to the decision which triggers the reference to amount to or be included in “the matter” if it has a real and significant connection with the subject matter of the process, in the sense of its procedural or substantive content, which has culminated in the decision notice or supervisory notice. Such connection must be real and significant, not fanciful or tenuous. But if so, that is sufficient. It need not be something upon which the FCA has specifically relied during the process, provided that it has a real and significant connection with the subject matter of the process. What is required when the FCA seeks to rely on something new in the Tribunal is an examination of what is new, and of the procedural or substantive content of the process culminating in the decision orsupervisory notice, and the establishment of a real and significant connection between them. If what is new has this connection it is within the Tribunal’s jurisdiction. It is a separate question whether the FCA should be permitted to rely upon it in any particular case, which is a matter for the exercise of the Tribunal’s case management powers as to whether it would be just and fair.”
“It is for the assessor to assess the case in the round…It is for the assessor to decide whether the advice is unsuitable, not the DBAAT. The DBAAT is simply a tool to assist the assessor in considering the relevant factors when assessing the advice and to record the outcome of the assessment, including the evidence relied upon to form that assessment.”
“…a disclosure failing would typically arise from some form of process or information provision failing. While we would expect firms to ensure that they make the correct disclosures, a disclosure failing would not necessarily result in a suitability failing where there is no material impact on the outcome for the member.”
“You will, of course, be able to draw on your state pension, once you are eligible”
“I am an investor with previous experience of equity markets or I am happy to accept a high degree of risk in exchange for the possibility of a higher pension in retirement.”
“had no knowledge of where the funds would be invested, we consider [she] did not have a reasonable basis for believing the transaction met the client’s investment objectives, that they were able financially to bear any related financial risks, and had the necessary experience and knowledge in order to understand the transaction.”
“a business loan, personal loan, secured loan or mortgage all put the family home at risk and decrease the financial security which goes against the basic tenet of financial planning. In my personal view none are as suitable as accessing monies held in an unused pension fund. If a client were advised to take out a mortgage to invest in a pension, that would be deemed totally unsuitable. This is what is being effectively suggested here – take out a mortgage and retain the investment in the [DB scheme].”
“I can tolerate the risk of large losses in my pension fund in order to increase the potential returns”
“…during the course of its file review exercise in 2019-2020, the Authority found that all 17 files it reviewed were non-compliant with regulatory rules and guidance relating to the suitability of Pension Transfer advice…”
“All 17 files were therefore considered to be non-compliant with the Authority’s COBS rules because HDIFA either failed to obtain the information necessary to advise the customer or the advice provided to the customer was unsuitable, and in none of the files reviewed was the advice given considered suitable.”
“you need to consider whether transferring your pension is the most appropriate way of achieving your aims. We suggest that you discuss these options and any other alternatives available to you with [the IFA] before making a final decision.” (3) It then added “you should now meet with the client and discuss the Initial Report. During that discussion you will agree whether or not to proceed with a transfer…”
“Until February 2017, I personally reviewed and approved all the suitability reports before they were sent. After that, it became impractical for me to do all of them. We agreed I would review one in ten.”
“If an individual who is not a pension transfer specialist gives a personal recommendation about a pension transfer or pension opt-out on a firm's behalf, the firm must ensure that the recommendation is checked by a pension transfer specialist.”
“Generally, it is accepted that transferring from a Defined Benefit scheme, which is a type of Safeguarded Benefit, is unlikely to be suitable as the member is giving up secured guaranteed benefits in return for those which are dependent on investment return and annuity rates.”
“As set out at the start of this Executive Summary, transferring from a Defined Benefit scheme, which is a type of Safeguarded Benefit, is unlikely to be suitable. This is because you will be giving up secured certain benefits in return for those which are dependent on investment return and annuity rates. By transferring, you are accepting the investment and longevity risk alongside the possibility that the products accessible now may not be offered when you do actually retire.”
“Where a member of a pension scheme has subsisting rights in respect of anysafeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before— (a) … (b) making a transfer payment in respect of any of the benefits with a view toacquiring a right or entitlement to flexible benefits for the member or survivorunder another pension scheme; (c) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”
“Confirmation from the member or survivor that appropriate independent advice has been received must be in the form of a statement in writing from the authorised independent adviser providing the advice confirming— (a) that advice has been provided which is specific to the type of transaction proposed by the member or survivor; (b) that the adviser has permission under Part 4A of theFinancial Services and Markets Act 2000 , or resulting from any other provision of that Act, to carry on the regulated activity in article 53E of the Regulated Activities Order…”
“In practice, this transfer has already been arranged and this Suitability Report is designed to formally confirm why it was agreed this was the most appropriate action for you at this time.”
“Based on our Suitability Report, the above client has decided [s/he] would like to transfer the pension benefits [s/he] has in the [ceding scheme] to [the receiving scheme].”
“I – Heather Dunne of HDIFA – can confirm that [client] has taken advice from myself when considering the transfer from the [ceding scheme], which is a Safeguarded Benefit scheme, to [receiving scheme], which is a Flexible Benefit arrangement. I have confirmed within my recommendation that the transfer is in the client’s best interest and therefore the most suitable option for their needs. The advice and recommendation I have provided are specific to this transaction.”
“There's no requirement for the suitability report to be issued prior to the transfer at that time. It was best practice. It was what we did most of the time, but on occasions, because of the three-month deadline and the guarantee deadline, we would have to submit the documentation earlier.”
“the only one in this process who's qualified to give that advice, is pushing on to the IFA a role that they're not qualified and not permitted to do, which is to give the advice, and…to police how clear the advice is that the clients are receiving.”
“an approved person performing an accountable higher management function must take reasonable steps to ensure that the business of the firm for which they are responsible in their accountable function complies with the relevant requirements and standards of the regulatory system.”
“A significant-influence function, in relation to the carrying on of a regulated activity by an appointed representative, means a function that is likely to enable the person responsible for its performance to exercise a significant influence on the conduct of the appointed representative’s affairs, so far as relating to the activity.”
“26. …the Authority has through its regulatory requirements imposedresponsibility on a firm which is a principal of an appointed representative for the acts and omissions of the appointed representative. As is clear from paragraph 12.1.3 of the Authority’s Supervision Manual (SUP), the main purpose of the Authority’s rules and guidance in this area is to place responsibility on the principal firm for seeking to ensure that its appointed representatives are fit and proper to deal with customers in its name and to ensure that customers dealing with its appointed representatives are afforded the same level of protection as if they had dealt with the principal firm itself. 27. In particular, the effect of SUP 12.3.1G and 12.3.2G is that the act or omission of an appointed representative, in respect of the business for which the principal has accepted responsibility, is treated as the act or omission of the principal itself. As the Authority observed in this case…the principal has full regulatory responsibility (including for any liabilities that might arise) for ensuring that the appointed representative complies with the Authority’s rules: a breach by the appointed representative is regarded as a breach by the principal firm.”
“The Authority accepts that it is time-barred from taking disciplinary actionin respect of Mr Fenech’s oversight of HDIFA’s deficient two-adviser advicemodel, because it became aware that HDIFA was operating that model inJuly 2015.”
“an approved person must act with integrity in carrying out his accountablefunctions”
“(1) There is no strict definition of what constitutes acting with integrity. It is a fact specific exercise. (2) … (3) Acting recklessly is another example of a lack of integrity not involving dishonesty. A person acts recklessly with respect to a result if he is aware of a risk that it will occur and it is unreasonable to take that risk having regard to the circumstances as he knows or believes them to be. (4) … (5) There are both subjective and objective elements to the test of what constitutes a lack of integrity. The test is essentially objective but nevertheless involves having regard to the state of mind of the actor as well as the facts which the person concerned knew.”
“The subjective element focuses on the state of knowledge of the individual concerned as to the risks concerned. The objective element focuses on the question as to whether it was reasonable for the person concerned to have ignored the risk. Clearly, in considering a person’s state of awareness in relation to a risk, it is appropriate to have regard to what would reasonably have been appreciated or understood by persons in the same position as the individual in question.”
“…a finding that a person lacks integrity denotes a failing of their ethical compass…even serious errors can be made by a person whose ethical compass is sound. In those circumstances, the person concerned may have acted negligently but he or she could not be said to have acted without integrity.”
“Mr Fenech’s reckless breach of Statement of Principle 1, as set out in this Notice, is separate and different from that misconduct. The Authority was not aware until October 2020 of the concerns raised by the compliance consultant [Mr Ellis], and subsequently by himself This appears to be a reference to Mr Fenech’s letter in February 2016, which we consider at §562. , and so was not aware until then that Mr Fenech had not acted on those concerns. This conduct was reckless and involved a lack of integrity, and so was conduct of a different nature to that which the Authority accepts is time-barred.”
“I considered that the two-advisor model added an additional layer of protection to retail clients as HDIFA was not providing investment advice and nor was it qualified or sufficiently experienced to provide investment advice. HDIFA was focussing on the suitability of a [Pension Transfer] with reference to the overall investment strategy and the IFAs providing the investment advice. The IFAs did not simply introduce HDIFA to the client, they remained involved in providing ongoing advice, dialogue and clarification throughout the entire process.”
“(1) If a person (other than an authorised person)— (a) is a party to a contract with an authorised person (“his principal”) which— (i) permits or requires him to carry on business of a prescribeddescription, and (ii) complies with such requirements as may be prescribed, and (b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing, he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility.” (a) is a party to a contract with an authorised person (“his principal”) which— (i) permits or requires him to carry on business of a prescribeddescription, and (ii) complies with such requirements as may be prescribed, and (b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing, he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility.”
“…the principal must have accepted responsibility, in writing, for the authorised activities of the person in carrying on the whole, or part, of the business specified in the contract.”
“…by deliberately providing the Authority with a copy of an Appointed Representative agreement between HDIFA and FSML which he had signed and backdated to create the false impression that a written agreement had been in place since30 August 2012 , the date that HDIFA was initially appointed as an AR of FSML. However, the agreement was only agreed and signed by Mr Fenech and Ms Dunne on22 June 2017 , after the Authority had intervened and had requested to see a copy of the signed AR agreement.”
“(1) For the purposes of action by the FCA under section 66, a person is guilty of misconduct if any of conditions A to C is met in relation to the person.
“her actions were deliberate and dishonest in respect of provision of the Backdated Agreement”
“…an ‘AR Agreement’ does not currently exist between you and FSML andindeed this in itself could give way to further regulatory and or legal implications. An AR agreement is currently being drafted and will be implemented shortly.”
“Herewith a draft which will need to be gone through with a fine tooth comb to ensure that you are happy with the content and conditions. I have put in the date the appointment happened. It has not been looked at by a lawyer and we cannot vouch for its enforceability in law. But it is a starting point.”
“Financial Solutions Midhurst Ltd, (“FSML”) whose registered office is, Avenue House Southgate Chichester West Sussex PO19 1ES whose Financial Conduct Authority (“FCA”) (FCA FRN is 45957) hereby appoints Heather Dunne, sole trader (“the firm”) and known as HDIFA which operates from The Stables Lynx Park Business Centre Colliers Green Cranbrook Kent (FCA FRN 524600) as an appointed representative (“AR”) subject to the following terms and conditions.”
“Expressions used in this agreement shall (unless the context otherwise requires) have the meanings attributed to them in the FCA (previously known as the Financial Services Authority) rules and any subsequent regulator that may replace the FCA.”
“I wanted to provide the Authority with a piece of information that I saw in June 2017 as an administrative requirement. I placed no weight on the importance of the AR agreement in the eyes of the Authority.”
“I think it’s worth correcting at least the first two points, because those make it abundantly clear it’s a document produced after the event, which is the last thing you want to do.”
“All investment business procured by the AR will be transacted on the terms which have been agreed between the principal and the AR and are contained within this contract.”
“Within two weeks of the end of each calendar quarter, the AR will remit to the Principal 15% of all fees (or commissions) earned by the AR in the preceding calendar quarter in respect of the pension business carried out in accordance with this agreement by the AR.”
“It does not actually reflect our financial relationship correctly, though that is less significant for the purpose, I would have thought it would make sense for it to refer to there being separate agreements in that respect.”
“The AR will be subject to strict compliance monitoring procedures which will include, submission of files for monitoring purposes and compliance visits at intervals to be determined at the sole discretion of the principal.”
“Please find attached a copy of the current agreement, which is due to be revised extensively as discussed.”
“Any agreements between Financial Solutions and Heather Dunne IFA (HDIFA) setting out the terms of HDIFA's position as an Appointed Representative of Financial Solutions.”
“Please find enclosed a copy of the Appointed Representative agreement confirming the terms of the contract between Financial Solutions Midhurst Limited (“FSML”) and HDIFA since 30.08.12 which was signed on 20.06.17 and provided to FCA Supervision on 22.06.17.”
“…When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“…long before the 2013 Alert was published, I had terminated my relationships with the handful of agents who had referred such cases to me. I had also reviewed my relationship, process and procedures with my only introducing adviser operating in the non-reg space…I never contemplated that the end destination of the pension transfer assets would be non-reg investments and, as I described above, at no stage did I have any belief, knowledge or expectation that my IA would be providing such advice either.”
“Because I knew you'd ask me the question and I would explain to you that I meant exclusively non-reg investments.”