12 September 2006
The Financial Services Authority has fined Braemar Financial
Planning Limited £182,000 for systemic failings in its sales
process for pensions unlocking, the failings resulting from
advisers not taking reasonable steps to ensure that recommendations
were suitable for their customers.
Pensions unlocking allows people aged 50 and over to take some
or all of the benefits of their pension in a lump sum and/or income
before they retire. This is a high risk business which is only
suitable for a limited number of people.
The FSA found that between November 2002 and November 2005,
Braemar had persistently failed to collect sufficient personal and
financial information about their customers before making
recommendations to them to unlock their pensions. The firm also
could not demonstrate that its recommendations were suitable as its
suitability letters were inadequate and its communications were not
clear, fair and not misleading. Additionally, Braemar could not
demonstrate that all the alternative options available to customers
had been adequately explored during the sales process.
The failings are deemed to be very serious because by unlocking
or releasing their pensions early, consumers face the risk of
having less than they expect to live on in retirement.
Clive Briault, FSA Managing Director for Retail Markets, said:
"Braemar is one of the largest players in this sector of the
industry and it should have been able to demonstrate that product
recommendations were suitable for its customers. When unlocking a
pension, the onus is on the firm to ensure that the customer is
aware of all the risks within the product as well as any
alternative options available to them.
"It is senior management's responsibility to ensure that all
communications, particularly those to vulnerable customers, are
clear, fair and not misleading. Other firms in this market must
take heed and ensure they have customers' interest in mind at all
times during the sales process."
In determining the appropriate level of financial penalty, the
FSA took into account that Braemar had proactively co-operated and
sought to mitigate the failings once they were brought to its
attention. Braemar immediately suspended business and instructed a
pensions consultant to review both its systems and controls and
sales process. Braemar is also reviewing its revised procedures and
monitoring most of its new business for a three month period.
The FSA has again warned that when advising on unlocking a
pension, advisers must:
- compare all the options available to customers, for example,
whether a loan or re-mortgaging a property would be more cost
effective;
- consider fully any possible effect on any state benefits;
- consider the impact on the customer's overall pension position,
not just the pension being unlocked; and
- be aware of the new A-Day implications, particularly whether an
income is required and an annuity should be purchased once tax free
cash is released, or whether the customer is better off taking no
income.
