Berkeley Jacobs fined 175,000 for 'pensions unlocking'

This advice potentially affected 5,000 consumers given advice between December 2000 and March 2003. The firm will be reviewing all 5,000 cases and has set aside 1 million to cover compensation costs and the cost of the review.

David Kenmir, Director of Investment Firms at the FSA, said:

"We will not tolerate firms showing such a blatant disregard for consumers' interests.

"In this case the firm tried to release as much cash from the consumer's pension as possible, often much more than the consumer needed or wanted. The more cash that was released, the more the consumer's hard-earned pension contributions benefited the firm rather than the consumer.

"No consideration was given to the substantial drop in the consumer's pension income or their inability to make up for that loss as they were so close to retirement."

The firm failed to:

• issue financial promotions that were fair, clear and not misleading. For example:-

  "The firm advertised extensively on Sky television with a series of cartoon style commercials that only promoted the benefits of releasing cash from your pension before retirement."

  "None of the commercials carried any warnings that this action would reduce income in retirement and might not be suitable for everyone. In fact, the advertising encouraged consumers to use the cash for short-term benefits such as holidays and buying luxury goods. There was no explanation that releasing cash early meant sacrificing future pension income for short-term gain and should be done only where there is an overwhelming need and / or no other realisable assets."

• gather sufficient information about customers. For example:-

  "The firm used a 'Client Profile form' to gather information about its customers. None of these forms asked for information that advisers would need to give suitable advice on retirement planning, such as information about the amount of income customers thought they would need in retirement; the value of life policies that were not committed to anything; or relevant information about any current pension arrangements."

• make suitable recommendations. In particular the firm did not:-

  • assess customers' need for income in retirement and how that was to be achieved;

  • consider the annuity option that gave the customers the best income;

  • carry out a comparison of the options available to customers, such as whether a loan or re- mortgage would be more cost effective;

  • assess customers' attitude to risk;

  • draw attention to the 'critical yield' on transfers from occupational pension schemes;

  • prioritise the competing objectives of "cash now" or "income in retirement"; and

  • assess the effect on DWP / DSS benefits

• issue suitability reports that gave customers adequate and fair information about what was being recommended. For example:

  "The suitability report was a bundle of documents containing a single A4 sheet with large bold type showing the amount of tax-free cash that was available. In smaller type the details of the pension payable were shown. There was no warning that releasing cash early would cause a reduced income in retirement. The only warning about the possibility of a reduced pension was a general risk warning which was made within the text of the report, in much smaller text and separate from the A4 sheet."

• have appropriate compliance arrangements in place to comply with the regulator's rules. For example:

  "The firm's compliance staff believed that if a customer said that access to cash was an objective, advisers did not have to consider any other alternatives. "

  Co-operation to resolve the issues only occurred once the regulator's concerns were brought to the attention of the Board of IFG Group plc which now owns Berkeley Jacobs. Berkeley Jacobs has since taken positive steps to resolve the problems. These have included:

  • undertaking a review of all advertising and financial promotions to ensure that its advertising strategy complied with the regulator's requirements;

  • the appointment of external consultants to review all sales and compliance procedures and to make recommendations for changes, where appropriate;

  • ceasing to write new 'pensions unlocking' business until the appropriate changes to its new business procedures were implemented;

  • undertaking the retraining of its advisers;

  • installing recording equipment in order to monitor the advice given to customers;

  • the recruitment of additional compliance resource; and

  • undertaking a past business review.

Notes for editors

1. 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.

2. The full text of the Final Notice issued by the Regulatory Decisions Committee, which includes the background to the case, further detail on the advertising undertaken, the relevant statutory provisions, regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine, may be found here.

3. Berkeley Jacobs is an Independent Financial Adviser and was incorporated on 28 October 1992. Berkeley Jacobs became authorised by the Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA) on 12 February 1993. Subsequently, Berkeley Jacobs became authorised by PIA on 27 January 1997 and remained authorised by PIA until the FSA assumed responsibility for it at N2.

   Berkeley Jacobs was acquired from its founder directors/shareholders by IFG Group plc ("IFG") in September 2000. Under the terms of the acquisition contract, the founder directors remained in Berkeley Jacobs and continued to run it until September 2003, when they ceased to have any involvement in its management. IFG is a quoted company, primary listed in Dublin with a secondary listing on the London Stock Exchange.

   Berkeley Jacobs specialises in advising customers on early vesting, i.e. taking pension benefits early.

4. Berkeley Jacobs did not identify the breaches. Nor did it accept the FSAs concerns when it was first notified of them following the FSA's Supervision visit in October 2002. However, after the gravity of the matter became clear to IFG, extensive and appropriate remedial action was taken to address the concerns identified.

   The FSA also acknowledges the extent of the investment that IFG has since put into Berkeley Jacobs to rectify the compliance issues in the company and the proposals Berkeley Jacobs has put forward to meet the requirements of a past sales review.

5. Information to help consumers who may be considering 'unlocking their pension' is available on our consumer website at www.fsa.gov.uk/consumer. It includes additional questions that a consumer should ask their adviser.

6. The 'critical yield' is the rate of investment return that you need to achieve to match your existing benefits.

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; the 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.