The FSA has fined Rockingham Independent Limited £35,000 and imposed partial bans on its directors Stephen Hunt and Jonathan Edwards and adviser Gary Forster.
The regulator found a number of failures at the firm resulting in 426 customers near or at retirement age being potentially exposed to the risk of receiving unsuitable investment advice.
In March 2010, Money Marketing first raised concerns about Rockingham’s Rita product which included the ARM insured income plan, investing in life settlements. In July 2010, Rockingham suspended its advice arm following an FSA visit.
The FSA investigation found that 39 investors were advised to invest in unregulated collective investment schemes, after the firm failed to understand the regulatory restriction on the promotion of these investments.
Ucis cannot be promoted to the general public in the UK and should only be proposed to certain limited categories of investors such as sophisticated investors and high net worth individuals.
Rockingham also gave investors misleading descriptions of its pension drawdown Rita product, describing it as relatively low risk. One of the underlying investments that customers were offered to invest within the Rita wrapper was the ARM bond, investing in life settlement policies which did not provide a capital guarantee.
Rockingham recommended the ARM bond to cautious to moderately cautious customers and did not place restrictions on the amount placed in each underlying investment. The FSA found examples where all of a customer’s investment was placed in an ARM bond, which the FSA says could potentially leading to an inappropriate concentration of risk.
Rockingham made 426 advised sales between January 2008 and September 2010, including 39 Ucis sales and over 200 ARM sales.
Hunt and Forster have been banned from holding the significant influence functions and the controlled customer function relating to any regulated activity promoting or recommending Ucis.
Edwards has been banned from performing compliance oversight in any regulated firm and from performing the customer function relating to any regulated activity promoting or recommending Ucis.
Rockingham has stopped selling any Ucis or structured products and has also agreed to conduct a past business review to determine whether any of the sales were unsuitable and whether any customer redress is neeeded.
FSA acting director of enforcement and financial crime Tracey McDermott says: “Rockingham and its advisers made the mistake of selling products that they did not fully understand. Rockingham and its advisers put hundreds of investors potentially at risk by advising them to put their money in Ucis and the complicated ARM bond. Advisers should take note: inappropriately advising customers to enter into unsuitable or complex products can not only lead to significant adverse consequences for those customers but also for the firms and the advisers themselves.
“We have previously warned about the particular risks of Ucis and life settlement products which are likely to be unsuitable for the vast majority of investors. The industry must heed these warnings.”
Rockingham customers can contact Rockingham’s customer helpline on 01832 770460. The FSA says customers may wish to seek independent advice from another authorised firm if they have concerns about the advice they received.
The sanctions do not impact on Rockingham’s direct annuity business.