Braemar Financial Planning Limited has been fined GBP182,000 by the UK's Financial Services Authority for failings in its sales process for pensions unlocking. The failings resulted from advisers not taking reasonable steps to ensure that recommendations were suitable for 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. According to the Financial Services Authority (FSA), this is a high-risk business 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 its 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, the regulator found.
In addition, Braemar could not demonstrate that all of the alternative options available to customers had been adequately explored during the sales process.
The FSA said that it deems the failings 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.
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, commented Clive Briault, FSA managing director for retail markets.
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 said that, were it not for the co-operation afforded by the firm, the fine imposed would have been substantially higher. Taking into account Braemar’s co-operation, the appropriate level of the financial penalty was determined to be GBP260,000. As Braemar entered into negotiations at the earliest opportunity, in accordance with the FSA’s settlement process, it received a 30% reduction in the level of its fine. Therefore, the final financial penalty imposed was GBP182,000.
In 2004, the FSA fined Sesame Limited, Berkeley Jacobs Financial Services and Read Independent Financial Advisers GBP290,000, GBP175,000 and GBP150,000, respectively, for pensions unlocking failings.