FSA fines two firms for advice failings in sales of geared traded endowment policies
FSA/PN/117/2008
9 October 2008
FSA fines two firms for advice failings in sales of geared traded endowment policies
The Financial Services Authority (FSA) has today fined Knowlden Titlow Financial Services Ltd £35,000 and Derrick Hales Financial Planning Ltd £10,500 for failures relating to the sale of geared traded endowment policies. The FSA also cancelled the permission for Derrick Hales and Kathleen Hales.
These are the first enforcement cases to arise from a targeted programme of work by the FSA examining the advice and sales processes of firms recommending geared traded endowment policies.
The FSA identified that Knowlden Titlow failed to:
- ensure that all of its advisers fully understood the policies and their risks before recommending them to customers;
- gather enough information about its customers to support and ensure the suitability of its recommendations; and
- adequately explain the risks associated with geared traded endowment polices.
In addition to the fine, Knowlden Titlow has agreed to stop selling geared traded endowment policies and to contact all customers sold potentially unsuitable policies, offering redress where appropriate.
Derrick Hales Financial Planning failed to:
- gather enough information about its customers;
- communicate clearly to customers the characteristics and risks associated with geared traded endowment polices;
- ensure advisers properly understood the products they were selling; and
- did not properly review sales.
Derrick Hales Financial Planning has agreed to stop selling these polices, undertake a past business review to identify the extent to which customers may have been given unsuitable advice and, where applicable, assess and make good any loss suffered and to provide further training and compliance support to staff.
The FSA has also cancelled the permission of both Derrick Hales and Kathleen Hales to perform the role of compliance officer and the role of partner, respectively, as they both failed to act with due care and diligence in ensuring that Derrick Hales Financial Planning complied with FSA rules and principles.
Jonathan Phelan, FSA Head of Retail Enforcement, said:
"Geared traded endowment policies are complex investments. We found with both firms that their advisers did not understand how these products work, nor could they show us they had a clear grasp of the risks involved. This made it impossible for them to properly advise customers whether the policies were suitable for them.
"These two cases are the first to arise from a recent programme of work we have done into the geared traded endowment policy market, and we will be taking further appropriate action to deal with the examples of bad practice that we uncovered in other firms."
Notes for editors
- Knowlden Titlow Financial Services Ltd is based in Norwich and Derrick Hales Financial Planning Ltd is based in Halifax. The Final Notices for Knowlden Titlow Financial Services Ltd, Derrick Hales Financial Planning Ltd, Derrick Hales, and Kathleen Hales include the background to the cases, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the level of the fines and withdrawal of permissions.
- Geared traded endowment policies are with-profits endowment policies which are no longer required by their original holder and have been sold on the secondary market. The purchaser of such policies agrees to pay the remaining premiums on the policy and in return receives the value of the policy at maturity or when the original owner dies, depending on which occurs first. This payout will include both bonuses declared at the time of the sale and subsequent bonuses, though such bonuses are not guaranteed.
- 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.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.