The collapsed wealth manager SVS Securities plc encouraged IFAs with defined benefit clients to promote transfers to high risk investments, the watchdog says.
Earlier in the week SVS went into administration as the FCA launched a probe into the firm for undisclosed reasons.
The note details how SVS breached conduct of business rules and acted in a manner that went against clients’ best interests.
SVS worked closely with third parties, in particular bond issuers/product providers and professional advisers, to help generate demand for the investment products offered through SVS, according to the regulator.
It did this without regard for the investment needs of customers who were subject to high fees and charges paid to SVS and to other transaction parties.
In some cases, these fees, commissions and charges amounted to over 20 per cent of the customer’s total investment.
The FCA highlights email correspondence records that SVS encouraged IFAs to promote its model portfolios as an investment solution specifically for clients who were proposing a DB pension transfer or Sipp switch.
Yet SVS increased the proportion of illiquid and high-risk bonds in its model portfolios that is likely not consistent with the needs and risk appetite of pension investors.
Approximately 90 per cent of SVS’ discretionary fund management business customers are invested in SVS’s model portfolios as a result of having received pension switching or pension transfer advice.
The FCA’s investigation raises particular concern over the lack of due diligence, high concentration and liquidity risk in relation to bonds issued by Corporate Finance Bonds Limited.
It says documents obtained from SVS show its model portfolios have had a consistently high exposure to these bonds in circumstances where SVS lacks adequate information about the underlying loan recipients and their financial standing.
The FCA expressed its concerns about this to SVS in January 2018 which then in fact increased the exposure of its model portfolios to CFBL’s bonds.
The note says from 31 March 2018 to 13 May 2019, CFBL exposure increased in its income (53 per cent to 78 per cent), mixed (46 per cent to 61 per cent) and growth (45 per cent to 51 per cent) portfolios.
It adds: “These also include other illiquid investments with high or unknown risks. SVS increased this exposure in circumstances where it lacked information from CFBL properly to assess the risk of these investments.”