Read IFA fined 150,000 for 'pensions unlocking'

These breaches potentially affected 1,100 consumers between September 2000 and January 2003.

This fine is the third of its kind imposed on an IFA firm this year. In February 2004 financial adviser Berkeley Jacobs Financial Services Limited was fined 175,000 and in October Sesame was fined 290,000 for similar regulatory breaches. These fines are the result of targeted enforcement work carried out by the FSA, which has been looking closely at the way in which a number of financial advisers have failed to act in the best interests of consumers when advising on pensions unlocking.

Andrew Procter, FSA Director of Enforcement, said:

"To 'unlock' money from a pension is a very serious decision for a consumer and it is absolutely crucial that firms make sure customers are clear on the risks involved. If consumers unlock their pensions early they will have less money to live on when they retire, making these products suitable only for a very limited number of people and circumstances.

"Read did not find out enough about its customers' financial circumstances or needs to be sure that it was recommending a suitable product to vulnerable consumers, many of whom were nearing retirement age. It also failed to ensure that it explored other options with its customers, so that it could be sure that pensions unlocking was the best available choice."

In particular, Read failed to:

• conduct its business with due skill, care and diligence in that it;

  • failed to ensure that its employees had adequate and up-to-date knowledge of the relevant regulatory Rules and Principles, in order to conduct its business in compliance with those requirements; and

  • sought to limit the advice it gave customers to advice concerning pensions unlocking only, rather than advising on pensions unlocking as one of a range of options for the customer, continuing to do so in breach of FSA Conduct of Business rules after 1 December 2001.

• pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading in that it;

  • failed to include any warnings about the risks of pensions unlocking in its financial promotions until June 2002 and made inappropriate statements in its promotions about the benefits of such products between May and October 2002; and

  • failed to disclose clearly and fairly in its terms of business its charges for the work done on pensions unlocking matters.

• take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment in that it:

  • failed to obtain information through its fact find questionnaire about its customers' available assets, disposable income and income requirements, with the result that it did not have sufficient information about the customer to ensure any recommendations of pensions unlocking were suitable for the customer in question; and

  • failed to carry out a comparison of options other than pensions unlocking which might be available for the customer in question.

Read's failings, therefore, merit a significant penalty. However, in determining the penalty amount, the FSA recognises the steps which Read has taken and continues to take to improve the operation of its sales process and its compliance function generally. In particular, Read is undertaking a past business review with a view to identifying and compensating all those customers who may have been adversely affected by its failings.

Notes for editors

1. The Final Notice issued by the Regulatory Decisions Committee, includes the background to the case, the relevant statutory provisions, regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine.

2. Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.

3. 'Pension unlocking' allows someone over the age of 50 to release their pension benefits from an occupational or personal pension before they have reached their retirement age. The benefits are transferred to a new pension arrangement from which they can release their money. More information can be found on the consumer website.

4. 'Pension unlocking' transactions are complex, highly specialised transactions and they contain risks. Consequently, they require particular care in advising customers and in ensuring suitability.

5. Read is an Independent Financial Adviser and was established in 1990, being incorporated in April 1999. Read became regulated by the Financial Intermediaries, Managers and Brokers Regulatory Association ("FIMBRA") in February 1993. In May 1997 it became authorised by the Personal Investment Authority ("PIA") and remained authorised by the PIA until the FSA assumed responsibility for it at N2. Read specialises in advising customers on early vesting ie taking pension benefits early

6. Information to help consumers who may be considering 'unlocking their pension' is available on our consumer website, it includes additional questions that a consumer should ask their adviser.

7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

8. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.