The firm is an IFA with eight advisers. The advisers are based in a number of locations across the UK and advise on all aspects of savings, investments and pensions. Five of the advisers are involved in pension transfer business.

The firm has three directors but one of the directors (Mr Z) is currently off work on long-term sick leave.

Summary of issue

The FSA received information that the firm was not supervising and monitoring its advisers in line with its own internal procedures. We also received information that gave us concerns that customers were not receiving appropriate advice.

What had happened?

Principle 3 requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. There are no detailed rules relating to supervising and monitoring advisers that support this Principle. So firms have to decide what controls and procedures are appropriate given its business.

The firm had its own internal procedures and training and competence requirements. However, due to Mr Z's long-term absence, Mr X had to take on a number of other tasks and duties ordinarily performed by Mr Z.

This led to Mr X being put under immense pressure for a period of approximately 12 months and resulted in Mr X being unable to keep on top of file checks (to assess suitability of advice and record keeping) and the on-going supervision of advisers. Mr X had not visited any of the advisers working remotely from the main office during this period.

Mr X had not discussed this with Mr Y. The directors only started to discuss the problem when the FSA contacted them.

What behaviour does the FSA expect?

Principle 3 places a responsibility on all the directors of the firm. It is clear that the directors had insufficient control of their business as they had not tackled the serious breakdown in their own procedures and the potential risk to consumers given the significant volume of pension transfer business being written.

We expect management of a firm to be on top of all aspects of their business. It is the responsibility of the management of the firm to detect any problems within their business, investigate them, find solutions, and review their business to make sure the problems do not reoccur. Dependent on the severity of the problem, the firm should decide if they need to inform FSA under Principle 11.

Outcome

After discussion with the FSA, the firm decided to engage compliance consultants to assist in monitoring and supervising the advisers, and to review the business undertaken over the last year.