The Financial Conduct Authority (FCA) has published a decision notice against Geoffrey Edward Armin proposing to fine him £1,284,523 and prohibiting from holding any senior management function or any function in relation to the regulated activity of advising on pension transfers.
Armin has appealed the decision to the Upper Tribunal. The decision notice therefore represents the FCA's view rather than the result of a concluded case.
During the relevant period, Armin was the sole approved person at Retirement and Pension Planning Services Ltd. Between June 2015 and December 2017, he advised 422 customers on the transfer of pension benefits from a defined benefit pension scheme into alternative arrangements (such as a personal pension). This included 183 members of the British Steel Pension Scheme (BSPS), 174 of whom transferred out of the scheme following a personal recommendation.
Following a review of 30 customer files, the FCA determined that Armin was "seriously incompetent" and in breach of Principle 2: "An approved person must act with due skill, care and diligence in carrying out his accountable function".
In coming to its decision, the FCA took account of what it considered to be numerous failures on the part of Armin, in particular that he failed to gather adequate information and give adequate consideration to customers' financial situation and income needs and that he made recommendations based upon unrealistic and unviable customer objectives. For example in one case, he advised a customer to transfer out of the scheme so that he could retire between the ages of 55 and 57 even though cash flow modelling undertaken after he had provided a recommendation showed that his pension fund could be exhausted by age 71 (or 67 if the customer decided to take the cash free lump sum when he retired).
The FCA stated that "when a firm is advising customers on whether to transfer out of a Defined Benefit Pension scheme, the firm should start from a position that a transfer will not be in the best interests for the majority of customers." The FCA found that Armin's starting point was that customers should be cautious and understand the benefits they would give up, but then placed heavy reliance on a customer's stated wish to transfer their pension and objectives even though the customer objectives were not realistic.
In addition, in the case of members of the BSPS, Armin:
- failed to conduct any research on alternative options available to members (none of the customer files reviewed by the FCA included copies of the BSPS information packs);
- did not take adequate steps to ensure he understood the benefits available under the scheme;
- did not obtain the necessary information to undertake a transfer value analysis.
The FCA concluded that none of the pension advice provided to customers complied with the relevant regulatory requirements and as a result there was a significant risk of customers transferring when it was not suitable for them to do so.
In calculating the appropriate penalty, the FCA assessed the benefit received by Armin from advising on pension transfers (after tax) and required that he disgorge the entire sum plus interest at 8% pa. In addition, Armin was required to pay a punitive penalty assessed at level 4 on the FCA's sliding scale (1-5) amounting to 30% of his relevant income. So in effect, Armin is required to pay 130% of the sums received.
Armin claims serious financial hardship. However, the FCA chose not to reduce the sum payable, primarily on the ground that Armin had not provided full and frank disclosure in relation to assets which he dissipated - including payments totalling £107,981 to family members which the FCA concluded were made with the intention of frustrating or limiting the impact of the FCA's action.
In addition to the penalty, the FCA has sought to ban Armin from undertaking a senior management function and providing advice on pension transfers. Interestingly the FCA has not sought to ban him from the industry generally and in theory at least, he would remain free to provide financial advice outside of advising on pensions. This outcome results from a determination that Armin's breaches arose through a serious lack of competence rather than deliberate or reckless acts.
Providing advice on pension transfers is highly technical, and well-meaning financial advisors can easily come unstuck if they don't have the necessarily skills or follow a meticulous process. For this reason many advisers have dropped out of the pension transfer advice market and professional indemnity cover can be expensive and hard to find. Providing advice is more complex where a pension scheme closes and options are not straightforward - like with BSPS.
In a letter to the Treasury Select Committee last month, the FCA has disclosed that it has conducted 36 past business reviews and commenced 30 enforcement investigations in respect of BSPS transfers. However, many regard these actions as too little and too late. In February 2018, the Treasury Select Committee published the results of its inquiry into BSPS which stated "The FCA has been gradually picking off firms who were providing unsuitable advice to BSPS members. This action is welcome, but it came far too late for the vast majority of members who transferred their pensions…The FCA has long been aware, however, of problems with DB transfer advice. They should have been monitoring the developing risks surrounding the BSPS and intervened earlier to protect members against unsuitable advice."
The fallout from BSPS is still playing out, and the FOS and FSCS are being kept busy. The FCA has written to 7,700 former members to inform them that many former members had received unsuitable advice and that they should consider complaining, setting out how to do so. We can expect many more disciplinary outcomes against firms and their advisors in the coming months and years.