1. FCA launched a investigation in FGS McClure Watters (FGS) and Lanyon Astor Buller Ltd (LAB) and subsequently fined Watters £75,000 for failing to exercise due skill, care and diligence in his role as compliance oversight officer
2. the investigation found that Watters failed to take reasonable steps to ensure that the process in place at FGS and LAB, for giving advice on ETV pension transfer exercises, was adequate and met regulatory standards.
FINDINGS
1. Enhanced Transfer Value (ETV) exercises incentivise customers to transfer their pensions. During these exercises, it is vital that customers considering giving up their guaranteed benefits are given suitable advice on the real benefits and consequences so that they can properly conclude whether a transfer is in their best interests.
2. Watters did not obtain an appropriate third party review of the processes to ensure compliance. Watters also failed to take reasonable steps to ensure that advisers were properly monitored to reduce the risk of unsuitable ETV pension transfer advice being given to customers.
3. FCA found that Mr Watters had left his staff to design their own process around advising customers about transferring from defined benefit to defined contribution schemes.
4. This led to a serious risk of unsuitable advice being given to customers of FGS and LAB about the merits of transferring their pension, from a defined benefit (DB) to a defined contribution (DC) scheme, as part of an ETV pension transfer exercise.
IMPACT
1. Approximately 500 customers that received advice from FGS or LAB transferred their pensions from a DB scheme to a DC scheme, with a combined value of approximately £12.7 million.
2. In many cases, it may have been unnecessary for customers to leave their DB schemes, thereby losing their guaranteed benefits.
ADDITIONAL INFO OF OFFICER
1. Below are info extracted from LAB's website on Watter's role:
i. He is highly skilled in corporate finance, with extensive experience in valuing, buying and selling companies across a wide range of sectors.
ii. His corporate finance activities have included Sales and acquisitions, Due diligence, Dispute resolution, Investigations, Raising finance, Stock exchange and share valuations, Business plans and business advice.
iii. David is also a registered auditor involved in providing audit, financial advisory and various business services, and has led many large assignments for public and private sector clients. David is currently leading the firm’s activities in the property advisory and reconstruction division of the firm. He advises clients on dealings with alternative sources of finance, lending institutions and NAMA. It also provides restructuring business review and insolvency services throughout Northern Ireland and beyond.
2. FGS McClure Watters was merged into LAB in 2008. Watters was granted regulatory approvals as a partner in FGS McClure in 2001 and as head of oversight at LAB in 2005. He was additionally appointed a director of the firm in 2008.
ACTION TAKEN
1. LAB has been requested by the FCA to set up an independent review and redress scheme that will compensate customers if they lost out.
THOUGHTS
1. This is a rare instance where enforcement action is taken against an individual over the fast-growing market for cashing in defined benefit pensions. Many are expecting more charges to happen soon as the FCA has changed its target from institutions to individuals.
2. Over the past two years, following major government reforms affecting retirement provision, the number of people swapping defined benefit pensions for cash lump sums has risen dramatically. This became a cause of concern for FCA that there could be mis-selling by some companies involved.
3. Defined benefit pensions are usually far more valuable than defined contribution schemes, because the former provide guaranteed retirement income based on salary level and length of service with an employer. When a large amount of customers transfer their pensions to contribution schemes, it should raise red flags.
(Source:FCA, lanyonastorbuller, FinancialTimes, Citywire)
