FSA censures Integrity Financial Solutions over geared TEP sales
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The FSA has today publicly censured Integrity Financial Solutions for failings in its role as a product provider and adviser of geared traded endowment policies.
Integrity is in voluntary liquidation, so the FSA has instructed the liquidator to write to the GTEP customers of the firm’s IFA practice, informing them they may have received unsuitable advice and could be entitled to make a claim.
Last month Integrity’s liquidators warned that claims against the firm could reach £80m.
The FSA has waived the £350,000 fine it would have imposed so that any remaining money can be used to meet customer claims.
Integrity was a provider of GTEPs but also advised on the sale of them through its IFA practice. An investigation by the FSA found serious failings in both areas.
In relation to sales to customers of its IFA practice, the FSA found that Integrity failed to communicate adequately why a GTEP was suitable for a customer and the risks associated with it.
Integrity also failed to gather or record adequate Know Your Customer information, document evidence of having researched other products that could have met a particular client’s needs, or demonstrate that their clients’ attitudes to risk were in line with the risk profile of the product.
In relation to Integrity’s role as a product provider, the firm failed to ensure that promotional material explained the product clearly.
The FSA also found that IFAs selling the product were not given balanced information about the risks associated with the product, contributing to IFAs advising customers to purchase a product that may have been unsuitable.
The FSA’s investigation follows a thematic review of GTEPs that began in 2007.
Following a visit from the FSA, Integrity carried out a past business review of GTEP sales to customers of its own IFA practice, but did not accept the findings.
The FSA subsequently carried out its own review of the firm’s files and commenced enforcement proceedings based upon the findings.
FSA director of enforcement and financial crime Margaret Cole says: “Geared traded endowment policies are complex products with significant risks attached to them. Integrity should have made these risks clear to investors, but it did not; neither did it ensure that the promotional material given to IFAs selling its product described the risks sufficiently. As a result, customers may have received unsuitable advice to invest in GTEPs and the FSA has been left with no choice but to censure the firm.
“As Integrity is in liquidation we have not imposed the £350,000 fine that we would otherwise have recommended as we believe any money left should be used to meet customer claims. However, the size of the fine we would have given is very significant indeed and financial advisers and providers alike must take notice of Integrity’s failings and ensure they learn from them.”
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Readers' comments (4)
Jeremy Newbegin | 12 May 2010 12:44 pm
Another example of the FSA acting much too slowly and who ends up paying the price? No prizes for the correct answer.
I am fed-up with watching the FSA closing the stable door after the horse has bolted. To make matters worse Directors and Advisers in this firm are still giving financial advice!! As for their choice of trading name...were they taking the mick?
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Anonymous | 12 May 2010 12:52 pm
Any investment which requires borrowing or credit as part of the package is by definition high risk and should be packaged as such.
The GTEP offerings I have reviewed todate have tended to indicate a much lower risk profile than they actually are in reality so as a consequence have not been recommended.
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Gillian Cardy | 13 May 2010 9:20 am
What amazes me in this particular case is that their own internal IFA had its failings and misadvised on its own products, thus should be held responsible for its own failings. Furthermore, the other IFAs who used the various schemes were given misleading promotional information - which is a failing of the product provider - so whichever way you look at it, Integrity (sic) is judged wanting and should pay.
This is the most extreme example of the unfairness of the cross-subsidy in the FSCS funding plan. It makes it clear that there has to be a more rigorous calculation of how damage in this industry is paid for.
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Ned Naylor IFA | 18 May 2010 6:56 am
The Integrity GTEP Maximiser, by any measure of competant mathematical calculation could never have achieved its objectives unless it consistently achieved endowment bonus rates of around 15.2% per annum. I have no sympathy for advisers who sold this toxic financial product as they had a duty of care to check the figures and sensitivity tables to ensure their clients and they, understood the risks to capital.
We are tasked and accept that task, of looking after clients interests, if we compromise that duty of care by selling unproven products, geared up with loans from building societies and banks, without a clear understanding of the product and purely for the obscene amounts of commission that can be earned, then those IFAs deserve all they get.
Recent adjudications by FOS against firms who sold this product all have a common theme, the adviser did not understand the products construction and they did not understand the risks associated with "gearing" up investments and they did not convey those risks to the client in an appropriate manner, most GTEPs were sold to older clients, some of whom were advised to raise the capital via a mortgage on their unencumbered residence, which, on failure of the plan still had to be funded.
Every investment has risk attached. There is the possibility that the investment will have lost the opportunity to make a profit. Gearing simply magnifies the risk. If the venture fails you have not only lost the opportunity to make a profit but you have to find something else to generate the cash to repay your borrowing.
If an IFA does not understand that fundamental concept, they should leave the industry.
On reflection, maybe RDR is not such a bad idea and maybe losing the right to be paid by commission will see those who cannot provide the service to their clients they are tasked with, will leave and let the remainder get stronger.
Ned Naylor - IFA
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