RSM Tenon Financial Services is the first advice firm to be fined by the FSA for failings relating to Lehman-backed structured products.
The FSA has fined the firm £700,000 for advice and sales failures relating to Lehman backed structured products and for failure to prevent unsuitable advice on pension switching.
It is the first enforcement action resulting from the FSA’s review of the marketing and distribution of structured products, particularly those backed by Lehman, which concluded in October. Three advice firms, including Tenon were referred to enforcement for giving unsuitable advice.
Tenon announced a merger with RSM Bentley Jennison in December 2009 but the failings pre-date this deal. Tenon will have to buy back any products from customers who got unsuitable advice and reimb-urse them for the amount originally invested plus interest.
The FSA estimates the value of Lehman-backed structured products which could be subject to redress to be £1.8m.
Tenon would have been hit with a £1m fine but qualified for a 30 per cent discount by co-operating with the regulator.
The FSA found that Tenon failed to treat some of its customers fairly in relation to its sales of Lehman-backed structured products between November 2007 and August 2008.
The FSA said it failed to fully assess the risks of structured products and ensure advisers considered those risks when providing advice to customers.
Of a sample of 22 transactions, three transactions were considered unsuitable and 14 had insufficient information on file to determine whether the advice provided was suitable.
The three files were deemed unsuitable where they did not adequately take into account the customers’ investment objectives or financial situation, the recommended product did not match the customer’s attitude to investment risk and there was an excessive concentration of client savings and investment portfolio in one or more products.
Fifty-nine per cent of customer files had insufficient personal or financial information to support the product recommendation.
The regulator said Tenon also failed to implement and maintain appropriate compliance monitoring to control the use of non-compliant direct-offer financial promotions and, more generally, failed to have effective risk management systems in place to manage and control its affairs and ultimately minimise the risk of unsuitable sales.
According to the FSA’s final notice, Tenon took net commission of £268,345 from its sales of 425 structured products and of these sales, 88 were Lehman-backed products.
Tenon will have to conduct a past business review of structured product and pension-switching business, paying customer redress where necessary.
It will also have its current investment sales processes reviewed by a skilled person.
At the time of the FSA’s investigations, Tenon had around 68 advisers in 11 offices across the UK.
FSA director of enforcement and financial crime Margaret Cole says: “We take failure in this area very seriously and the fine and other actions demonstrate our commitment to credible deterrence.
“This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review and we acted swiftly and decisively in order to return money to investors as quickly as possible. We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors.”
Lehman Brothers action group Spirit founder Peter Howard welcomed the news. He says: “We have been saying all along that there has been misselling and we have been proven right by what has happened and the FSA has taken the correct decision.”
Baronworth Investment Services director Colin Jackson says: “It is one hell of a hit. Not many firms would be able to cough up with that sort of money. It must be very worrying for the other two firms facing enforcement looking at the extent of the fines.”
Tenon says that it has continued to enhance both its sales, compliance procedures and its management since the period covered by the review and is satisfied the issues highlighted in the FSA’s notice have been addressed.
A spokesman for the firm says: “Tenon Financial Services has cooperated fully with the FSA during its review and is committed to resolving any issues which arise.
“TFS believes that the customer contact program it intends to undertake will demonstrate that the substantial majority of the relevant sales reflected appropriate advice to our clients.
TFS will, in line with its usual policy, offer redress to any clients who are ultimately found to have received unsuitable advice. The TFS board believe that the costs of this exercise will not have a material impact on the continuing business of TFS.”