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‘Maximum assistance, minimum interference’: FCA lays bare Financial Ltd risk failings

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Former Financial Ltd boss Charlie Palmer built an advice network that treated advisers as the end customer and failed to heed warnings about potential suitability risks, the FCA says.

The regulator has today issued a decision notice against Palmer for failing to ensure appointed representatives gave suitable advice to around 40,000 clients. It also wants to fine him £86,691.

Palmer has referred the matter to the Upper Tribunal.

Pension switching and Ucis

The proposed fine and ban relates to the period between 24 February 2010 and 20 December 2012 – after Palmer had been hit with a separate fine and final notice from the regulator over systems and control failings which led to customers receiving inappropriate pension switching advice.

The past business review into pension switching advice is ongoing and, although the loss to individual customers has not been quantified, the FCA says “high levels” of potential unsuitability have been identified.

The network is also carrying out a voluntary internal review of Ucis sales. As at 16 July 2015, 94 per cent of Ucis transactions (296 of 314) had been identified as potentially unsuitable.

No restrictions

Financial Ltd operated a “hybrid” network model whereby commission was paid directly to appointed representatives from product providers. The network received revenue through a fixed monthly membership fee.

According to a skilled person’s report ordered by the FCA, there were no restrictions on the business models of Financial Ltd ARs. Member firms were, therefore, “effectively permitted to follow their own sales process and use their own adviser tools…which [Financial Ltd] had not assessed as fit for purpose”.

In addition, Financial Ltd did not limit product recommendations to approved providers and marketed itself to ARs as offering “maximum assistance with minimum interference”.

The FCA argues that Palmer was responsible for creating a business structure and culture that put advisers, rather than those receiving advice, first, and failed to put in place adequate controls to mitigate the risk of ARs breaching its ‘treating customers fairly’ principle.

It says the “cultural focus” on ARs as end customers was directly responsible for the failings at the network.

“This culture created an environment which allowed poor standards of business to continue for a significant period of time,” the FCA says.

‘How will it benefit the IFA?’

According to the FCA decision notice, Palmer stated in the group’s 2012/13 business plan that the network’s goal was to double in size by 2016 in terms of both gross profit and member numbers.

In the same business plan, which Palmer presented to the board, he set a strategic priority for the network to “Focus on what the IFA wants and needs. This means not doing what we think is right for them, but doing what they ask us for (sic)”.

The strapline for the business plan was: “The year to focus on the IFA. Consider every decision and ask ‘How will it benefit the IFA?’”

And while the plan also stated the business model “would move towards customers and advice”, Palmer’s presentation to the board said: “In terms of the main business model, there are no major changes to the services offered.”

The FCA argues that while Financial Ltd’s business plan demonstrated “an intended significant shift in…focus to consumers”, this was not reflected in Palmer’s presentation to the board or in the implementation of the business model.

And while the regulator concedes Palmer was not responsible for Financial Ltd’s risk management framework and compliance controls, it says he should not have relied on the firm’s compliance and risk management directors to ensure risks were being identified and effectively managed.

“Mr Palmer therefore had a responsibility to take adequate steps to ensure that the material risks in respect of underlying customers which arose from the business model that he had developed were being effectively managed…that he and the board were aware of and understood the risks, and that he and the board received sufficient, relevant and reliable information and valid assurance that the controls and mitigating measures in place were effectively controlling or mitigating such risks,” the FCA says.

“Mr Palmer failed to take such steps.”



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Seems the FCA are making some fair minded and valid points. What is Mr Palmer complaining about? He was responsible for but either didn’t appreciate or comply with his personal responsibilities. Why should the clients he was supposed to look after suffer loss but not him? Why should other industry participants pick up his tab? Well done FCA, finding your teeth has made me smile!

  2. Hmm! …. Some very valid points are made in this article – which I trust will not reflect negatively on the former membership of Financial Ltd as they too were victims in this matter … But that’s a different story.

    Do remember however that there were other Directors and Senior Management of Financial Ltd closely involved (and paid a great deal of money no doubt!) for ensuring that the Network was run in a Compliant manner. This they failed to do! Personally, I’m surprised that it took the FCA 5 years to act against Financial Ltd and (in effect) close the gate after the horse has bolted!

    Whilst Charlie must accept his share of the responsibility for any shortcomings in Regulatory Standards (and he certainly knew how to rattle the Regulator’s cage!) he’s not the only person responsible person and should not be made to shoulder the blame in this way. Financial Ltd was not a ‘one man band’ – far from it – and if I’m honest, I feel a little sorry for Charlie being made a ‘scapegoat’ in this way.

    Whilst Financial Ltd have most certainly been found wanting in many areas of Compliance and AR support, on a personal level, Charlie Palmer seemed a very nice guy.

  3. Christopher Petrie 11th December 2015 at 4:23 pm

    Unfortunately financial advisors are not judged on if we are “nice guys”. We’re judged on whether we’re competent or not.

  4. What about the advisers who have provided the poor advice and client outcomes? I’m sorry but they are the real problem, yes the network should have stopped them and should have had controls to identify them. Was this a lack of training or out and out poor advice for profit?

    It would be nice to see this time from the regulator examples of these poor pension switches, the documentation, suitability letters and why they are deemed unsuitable. It would provide clear guidance from the regulator, if we could actual see cases they have deemed unsuitable and why.

  5. Is this an example of retrospective regulation? Financial’s business model was clear and well publicised. As an adviser considering joining a Network in 2010 I considered Financial and this was very much the model put to me. Why is the FCA now looking at this? What was the FSA doing at the time? Were they working and monitoring Financial to ensure there were no compliance risks?

    More to the point did this business model ACTUALLY produce poor client outcomes?

  6. As I read this article, it sounds like the FSA did tell Palmer what it wanted him to do but he just carried on regardless. If that’s the case, it’s difficult to have much sympathy for him, even though seems to be widely regarded as a generally good bloke. With some justification, he may well have considered the FSA’s requirements to have been beyond reasonable and that it should instead have been focusing its attention on the untoward practices of bigger players (like the banks) which it plainly didn’t.

    Maybe the FAMR will, at least to some extent, rein in the FCA’s disproportionate focus on certain sectors whilst turning an almost blind eye to the activities of others, but the hard reality is that the regulator has the whip hand and if you don’t do what it says, you’ll get a whipping.

  7. “…..And while the regulator concedes Palmer was not responsible for Financial Ltd’s risk management framework and compliance controls, it says he should not have relied on the firm’s compliance and risk management directors to ensure risks were being identified and effectively managed……”
    So why have directors of compliance at all. If they cannot be relied upon what is their purpose.
    Would love to know what the FCA would have done if they sacked these people previously.

  8. I advised many staff of both NatWest & Lloyds TSB to reduce their holdings in their employers banks shares prior to the credit cricise, while the Chairman on one of these banks under pressure from Golden Brun BOUGHT HBOS with NO due diligence udnrtaken at all wiping millions of teh value of those shares. The senior bankers other than Fred Goodwin walked away unscathed and Charile P, who the FCA says he relied on the compliance directors to do THEIR job, gets fined and banned.
    There is NO justice when it comes to the F-pack, it5 is one rule for them and their mates & one rule for us.

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