The FCA has won a legal battle to fine Westwood Independent Financial Planners £100,000 over suitability failings in geared, traded endowment policy sales.
The Upper Tribunal has upheld the decision by the regulator to fine Scottish firm Westwood in a judgment issued last week.
The FSA ruled in May 2011 that Westwood failed to ensure suitability of advice and failed to communicate in a way which was clear, fair and not misleading, in Gtep sales carried out between September 2005 and October 2007.
Westwood appealed the decision but the Tribunal has upheld the FCA case, finding that Westwood failed to pay due regard to the information needs of its clients, and failed to communicate in a “fair and clear” manner.
Westwood failed to communicate the nature of the risks involved in the plan, and did not take reasonable steps to ensure clients understood the nature of the risks, the tribunal found.
Over the relevant period, Westwood advised 50 clients to invest in an Integrity Gtep plan, which involved an initial investment to buy a selection of traded endowment policies and further borrowing to purchase additional Teps.
The FCA says Westwood advised a number of clients to remortgage their home to invest in Gteps.
Many of the Gtep plans sold by Westwood have fallen significantly in value, although in most cases the underlying endowment policies still have a number of years left to maturity.
All of the customers who gave evidence at the hearing have been forced to assign other investments to their Gtep plans, or inject cash into them.
The evidence at the Tribunal also showed that some Westwood Gtep customers have already received compensation from Westwood’s professional indemnity insurers and the Financial Services Compensation Scheme.
In finding that Westwood should be fined £100,000, the Tribunal stated: “We note that Westwood made £509,123 commission from the sale of 50 Gteps during the relevant period.
“We consider that the amount of the penalty should be set at a level that both punishes Westwood for the breaches and deters others from similar conduct. We take the view that a penalty of £100,000 or more is a significant amount and would be an effective deterrent to others”.
Westwood no longer carries on any regulated activities, having been placed into sequestration (a Scottish term for bankruptcy) in October 2011.
It remains open to Westwood to appeal the judgment.
Westwood is the latest firm to be disciplined as a result of the FSA’s thematic review into Gteps. Other firms to have been disciplined are Integrity Financial Solutions, Knowlden Titlow Financial Services, Derrick Hales Financial Planning, The Garrison Finance Centre and The Matrix Model Group.