The Financial Services Authority (FSA) has announced it has levied fines totalling £143,500 on two firms which it said failed to check the suitability of the pension switching advice they gave their customers.

In a statement, the FSA announced Milton Keynes-based Perspective Financial Management (PFM) was fined £49,000, while Barnsley-headquartered Cricket Hill Financial was fined £70,000.

Cricket Hill’s director Jeremy Sheard was fined £24,500, while his colleague Mark Kelsey, responsible for compliance, was issued with a public censure.

According to the FSA, Cricket Hill had ‘significant problems’ with its advice and sales processes. The authority said Cricket Hill advisers were “routinely” recommending customers switch their pensions to a pension fund risk management service, without sufficiently researching alternative products.

The firm could not demonstrate the suitability of this advice, particularly as most of its customers were unsophisticated financially and had small pension pots, the FSA said.

Cricket Hill and Sheard “also failed to identify and manage conflicts of interest adequately”, the authority said.

In a statement, Sheard said the company expected very few of the more than 2,000 customers advised to switch by Cricket Hill would have suffered financial loss due to the firm’s actions.

“Nevertheless, we accept the FSA’s findings that there were failings in our systems and controls and advice processes. We have fully co-operated with the FSA investigation, and have enhanced our systems and processes so that they are now fully compliant with FSA regulations,” he said.

Sheard said that he became aware of the “decidedly mediocre” returns available to clients investing in the providers’ managed funds “many years ago”. This was followed by the formation of what is now the Strutt & Nightingale Risk Management Service.

“The FSA acknowledges that during the period they were investigating Cricket Hill the risk management service’s average performance appears to be higher than other industry benchmarks. The FSA also accepts that in the pension switches that had been reviewed to date no customers had suffered financial detriment as a result of our advice to switch their pension."

The firm intends to offer a compliant process in future.

On PFM, the FSA said its investigation found “shortcomings” in the way the firm monitored its pension switching advice, resulting in customers receiving unsuitable advice. PFM “failed to collect or record important information such as details of customers’ existing pension plan, needs and objectives”.

The FSA said it found evidence of unsuitable pension advice in five out of the nine cases reviewed. Further, the authority said PFM made “unsuitable recommendations” to customers to switch pensions when the new pension was almost identical to their existing scheme, meaning customers incurred unnecessary costs.

The investigation also revealed customers could not make informed decisions about whether to switch pensions as PFM provided “inadequate information” on the cost of services associated with the new pension such as discretionary fund management, the FSA said.

According to the FSA, it also found PFM failed to put in place any system or procedure to ensure it only recommended Unregulated Collective Investment Schemes to customers who met specific, statutory, exemptions such as customers who were high net worth or sophisticated investors.

In a statement on the matter, PFM managing director Tim Langman said that having assisted the FSA in their enquiries and undertaken a full internal review, the firm is confident any FSA rule breaches were a result of ineffective management procedures and not deliberate misguidance.

“We accept responsibility for these breaches, and have worked to ensure that there will be no repeat of these instances. Since acquisition by PFG there have been significant changes to PFM’s organisational, governance and compliance arrangements to ensure that PFM is providing compliant and professional advice at all times. The FSA has acknowledged these changes and considered that the failings identified have been mitigated to a considerable extent by the implementation of such changes.

“Over the past couple of years we have developed a team of advisers and colleagues at PFM who are experts in their field and who we are confident offer a first class service and sound advice,” Langman said.

The managing director added the inquiry does not affect Perspective Financial Group Limited or any other subsidiary firms within the group.

Managing director of the FSA’s enforcement and financial crime division Margaret Cole said pension switching is a “complex area”, and advisers recommending a change of provider must be able to demonstrate that the advice is suitable.

“Firms that fail to do this put customers at risk of being worse off due to exit penalties applied to their existing pension and higher charges on the new pension.

“The FSA considers the failings at PFM and Cricket Hill to be serious, and will not hesitate to take action where we find evidence of bad practice relating to pension advice,” Cole said.

Both firms cooperated with the investigations, the FSA said. In addition to the fines, the authority has appointed a skilled person to carry out past business reviews of relevant pension switching cases at both firms.

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