The FSA has publicly censured The Garrison Finance Centre Limited for failing to communicate the risks of geared traded endowment policies to their clients, some of whom remortgaged their properties to buy policies.
The FSA has waived the £35,000 fine it would have imposed on the firm because it is in liquidation and any remaining funds are to be used to meet customer claims.
The firm took £165,000 in commission for the 29 geared Tep sales it made over the period covered by the enforcement action. All the sales were made by a single adviser, who is not understood to be subject to enforcement action.
The FSA has instructed the liquidator to write to the firm’s geared Tep customers telling them they may have received unsuitable advice and could be entitled to make a claim.
Several of the firm’s clients remortgaged their properties to take out the geared Tep policies but they were not warned of the risk to their properties through gearing.
Only one of the clients was warned of the possibility that they might have to inject further capital to keep their Teps going.
The FSA found that, in some cases, clients’ attitude to risk was not recorded and in instances where they were, the risk profile was not consistent across all documentation.
In some cases, the recommendation to take out a geared Tep did not match the customer’s risk profile.
Documents sent by Garrison to clients often lacked clear or balanced information to enable clients to make an informed judgement on whether or not to accept the product recommendation.
A review by an external compliance consultant found that all the firm’s Tep sales over the period failed to comply with FSA principles.
FSA director of enforcement and financial crime Margaret Cole says: “Geared traded endowment policies are complex investment products with significant risks attached to them. Garrison failed to make this clear to its customers, so many of them may have received unsuitable advice.
“Advisers currently offering or considering offering complex investment products should look at the details of these cases and act to ensure they are treating their customers fairly. Anything less will result in strong action from the FSA.”
The investigation follows a thematic review of geared Teps conducted by the FSA’s small firms and contact division which began in 2007.
In May this year, the FSA publicly censured Integrity Financial Solutions over Tep advice. In 2008, the regulator fined Knowlden Titlow Financial Services and Derrick Hales Financial Planning for failures relating to the sale of geared traded endowment policies.