The IFA firm was advising consumers to release cash early from their pensions ('pensions unlocking').
The advice given potentially affected 3,205 consumers between August 1999 and May 2001. During this time Sesame was known as Kestrel Financial Management Limited and was renamed Sesame Limited on 1 August 2003. Sesame is responsible for the advice and regulatory compliance of its IFA network.
This fine is the latest result of targeted enforcement work currently being carried out. The FSA has been looking closely at the way in which a number of financial advisers have failed to act in the best interests of consumers when advising on pensions unlocking. In February 2004 financial adviser Berkeley Jacobs Financial Services Limited was fined for similar regulatory breaches.
Andrew Procter, FSA Director of Enforcement, said:
"It is the responsibility of the operator of a network to ensure its members comply with FSA regulation. Sesame allowed its appointed representative to release cash from consumers' pensions with insufficient regard to the impact this would have on their income. The more cash that was released, the more the consumer's hard-earned pension contributions benefited the firm rather than the consumer. Little consideration was given to the substantial drop in the consumer's pension income or their inability to make up for that loss as they were so close to retirement.
"Consumers need to be aware of the potential effect releasing cash early from their pensions can have, reducing their pension 'pot' and their income. We are keeping a particularly close eye on pensions unlocking advice."
The fine would have been significantly greater if the firm had not cooperated with the FSA's investigation. The firm has agreed to carry out a customer identification and compensation programme within a reasonable timescale.
As an operator of a network of appointed representatives, it was Sesame's fundamental obligation under the regulatory system to establish procedures to ensure that its appointed representatives carry out their functions in a way such that Sesame complied at all times with the FSA's rules and principles.
In particular, Sesame failed to:
- adequately monitor the selling practices of an appointed representative, Regal Partners Financial Planning Limited, (Regal Partners) which was responsible for serious systemic failures, including:
- operating a 'processed'/formulaic approach to selling which failed to take account of all the aims and objectives of its customers;
- issuing 'Reasons Why' Letters which did not identify why the customer required Pension Fund Withdrawal income and gave the impression that income taken from the Pension Fund Withdrawal could be reinvested back into the same contract (which was not the case);
- failing to ensure that appropriate risk warnings were being sent out;
- failing to offer evidence to show that the trail commission had been disclosed to the customers in cash terms; and
- failing to ensure that all pension transfers had been checked by a designated individual.
- keep sufficient records; and
Sesame's failings, therefore, merit a significant penalty. However, in determining the penalty amount, the FSA recognises the steps that Sesame has taken which are as follows:
(1) it has implemented a series of changes to the management, systems and control processes which led to the detection of the serious problems with pension unlocking, and
(2) it has agreed that within a reasonable timescale and on specific terms agreed with the FSA, it will carry out a customer identification and compensation programme in respect of the relevant pension business transacted by its former appointed representative, Regal Partners.
