Wrong Investment Advice Costs £35k on Rockingham Independent Limited

Jack Humphrey, Regulatory journalist
September 15, 2011 /

The Financial Services Authority (FSA) has fined Peterborough-based firm Rockingham Independent Limited (Rockingham) £35,000 and imposed partial prohibitions on its directors Stephen Hunt and Jonathan Edwards and adviser Gary Forster for failure to give customers suitable investment advice.

The FSA has previously taken action against a number of other firms and individuals for failings in relation to UCIS, including Paul Banfield and Anthony Moss, Best Advice Financial Planning Limited, Specialist Solutions Plc, Perspective Financial Management Limited, Moneywise IFA Limited, Clark Rees LLP and Alpha 2 Omega Limited.

The FSA discovered several shortcomings at the firm resulting in 426 customers near or at retirement age being potentially exposed to the risk of receiving unsuitable investment advice. In one particular case, 39 investors were advised to invest in Unregulated Collective Investment Schemes (UCIS), after the firm failed to understand the regulatory restriction on the promotion of these investments.

Although UCIS are not authorized schemes there are regulations surrounding them, therefore people carrying on regulated activities in relation to them, such as giving a personal recommendation, are subject to FSA regulation.

The FSA maintained that 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.

Further, Rockingham allegedly misled investors by describing its pension draw down offering called the Retirement Income Tri-Investment Account (RITA), 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 senior life settlement policies which did not provide a capital guarantee.

Rockingham allegedly recommended the ARM Bond to cautious to moderately cautious customers and did restrict the amount placed in each underlying investment. As a result, the FSA found examples where all of a customer’s investment was placed in an ARM Bond, potentially leading to an inappropriate concentration of risk if that investment was a significant part of their overall wealth.

Rockingham made 426 advised sales in total during the relevant period, including 39 UCIS sales and over 200 ARM sales.

Hunt and Forster have been banned from holding the significant influence functions (SIF) and the controlled customer function (CF30) relating to any regulated activity promoting or recommending UCIS. Edwards, meanwhile, 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.

A fine of £20,000 would have been imposed on Edwards but for evidence that this would cause serious financial hardship.

Rockingham stopped its sale of any UCIS or structured products and has also agreed to conduct a past business review to determine whether any of the sales were not suitable and whether any customer redress may be required.

Tracey McDermott, acting director of enforcement and financial crime, said: “The FSA has repeatedly emphasised the importance of suitable advice – particularly in relation to UCIS and other complex investments.

“Last year we published the findings of a thematic review that looked at the sale of UCIS by small firms. In it we set out our concerns that firms lacked awareness of the regulatory requirements, lacked understanding of the market and the risks involved, and were promoting and recommending UCIS to customers who may not be eligible for them. This case reflects those findings.

“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 and its directors co-operated with the FSA’s investigation and agreed to settle at an early stage. The sanctions do not impact on Rockingham’s direct annuity business.


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