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FSA/PN/091/2006
11 September 2006

The Financial Services Authority (FSA) has fined Braemar Financial Planning Limited £182,000 for systemic failings in its sales process for pensions unlocking. The failings resulted 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.

Were it not for the co-operation afforded by the firm, the fine imposed would have been substantially higher. Taking into account the firm's co-operation, the appropriate level of the financial penalty was determined to be £260,000. 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 £182,000.

In 2004, the FSA fined Sesame Limited, Berkeley Jacobs Financial Services and Read Independent Financial Advisers £290,000, £175,000 and £150,000 respectively for pensions unlocking failings.

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.

Notes for editors

1. The full text of the Final Notice, which includes the background to the case, the relevant statutory provisions, and the regulatory requirements contravened can be found on the FSA website.
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. The FSA operates a discount scheme for financial penalties imposed during the settlement process. The discount is dependant on the timing of any settlement reached as follows:
   1. (i) Stage one (early settlement stage): 30%
   2. (ii) Stage two (up to the expiry period for making written representations to the Regulatory Decisions Committee): 20%
   3. (iii) Stage three (up to the issue of the Decision Notice): 10%
   Further information on the FSA's settlement process is available in the Enforcement information guide.
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 for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness