FSA fines Shawlands Financial Services Limited (formerly Frizzell Life & Financial Planning Limited) 140,000

Shawlands became a wholly owned subsidiary of Liverpool Victoria Friendly Society ("LVFS") on 5 June 1996. The practices for which Shawlands has been disciplined occurred for the most part when the firm was under the control of its previous owners and management. LVFS has worked in an open and co-operative way with the Personal Investment Authority (PIA) and FSA, and has undertaken appropriate remedial action in relation to the affected policies.

Arrangements have been put in place for the refunding of part of the commission to back to back customers whose policies commenced between 29 April 1988 and October 1997. In addition, there will be a pro-active review of back to back arrangements in circumstances where the policyholder discontinues the arrangement before maturity, or complains or questions the appropriateness of the arrangement with a view to establishing the suitability of the recommendation given.

Investigations established that Shawlands had:

• failed to keep sufficient records of client information or instructions received from clients to provide evidence that recommendations made were suitable;

• from January 1995, given inadequate written explanations to clients of the reasons why a recommendation was suitable;

• failed to establish adequate monitoring procedures to ensure compliance with the relevant conduct of business rules. Shawlands :
  applied a standardised approach to its back-to-back clients which did not always generate:
  (i) records that demonstrated how the approach was adapted in each case to suit the individual client's needs and circumstances; and
  (ii) recommendation letters that adequately explained why the back to back arrangements were suitable in the light of the client's needs and circumstances; and

• used inadequately supported best advice lists, reliance upon which led to a failure to record the rationale behind the recommendations given.
  

Notes for editors

1. Back to back arrangements are used for the investment of capital lump sums. The arrangements consist of a temporary annuity together with an annual premium endowment savings plan that usually runs for the same term, often 10 years. At the outset, part of the lump sum invested is used to pay the first premium on the endowment; after that the annuity funds the remaining endowment premiums. These types of policy are also known as fully funded back to backs. A minority of cases concerned an annuity with a lifespan less than that of the endowment - known as partially funded back to backs. With these products the remaining annual premiums falling due after the annuity has expired must be paid from other funds. In both instances, at the end of its projected life the endowment policy provides a capital sum.

2. Shawlands is based at County Gates, Bournemouth, BH1 2NF.

3. Customers who arranged back to back policies with Shawlands (numbering approximately 12,000) will be contacted directly by Shawlands.

4. 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.

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