UK Firm Fined Over Pension 'Unlocking'

by Robin Pilgrim, LawAndTax-News.com, London

15 September 2006

The UK's Financial Services Authority this week announced that it has fined Braemar Financial Planning Limited 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 option 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 that they 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 or fair, and were misleading.

Additionally, Braemar could not demonstrate that all the alternative options available to customers had been adequately explored during the sales process.

Clive Briault, FSA Managing Director for Retail Markets, announced that:

"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 cooperated 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 GBP260,000. 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 GBP182,000.

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