MONEY COMMENT
Financial Firms fined £450,000 - This Week!

By Jane Mack (TMFJane)
June 11, 2004

The Consumers' Association must have had a premonition last Friday when they released details of an undercover investigation, and claimed that financial advisers 'can't be trusted'. According to their researchers, most advisers they tested had either given poor advice or had used some rather questionable sales tactics.

Since then no less than three firms of financial advisers have been fined for various transgressions by the city watchdog, the Financial Services Authority, who has raked in £450,000 in financial penalties this week alone!

On Tuesday, Interdependence Ltd in Leeds was fined £125,000 for 'serious failings' because several hundred customers may have taken their pension too early on the advice of some of the firm's pension experts.

On Thursday, Hargreaves Lansdowne were fined £300,000 for breaching the rules of description for split capital investment trusts - a type of investment that collapsed in a big way a few years ago. HL had continued to describe the product to clients as 'low-risk' even after it became evident that it wasn't.

On Friday, Scotts Private Client Services Ltd were fined £25,000 for inadvertently putting investors' funds into an unauthorised and apparently unlawful investment scheme. They failed to carry out the necessary checks and so their customers lost out. The FSA says it would have fined the firm more but as it has limited financial resources, they were more keen to see the money go towards compensating investors.

It occurred to me as news of all these fines drifted in this week that £450,000 was rather a lot of money and I wondered what the FSA did with it. It appears they're not allowed to treat it as income so it's used to subsidise the annual fees that financial advisers, banks and insurance companies have to pay for their licence to operate. If most of the fines happen to have come from one sector in one particular year, that sector gets the biggest subsidy the following year so the money is effectively returned to the industry on a pro-rata basis.

Personally, I think the fines should be used to educate the public so they know a bit more about where they're putting the money. Or maybe the companies should be made to use their subsidies to train their staff a bit better and ensure the proper procedures are in place!

More: Financial Products To Avoid; The Lesson From The Split Capital Debacle; IFA Commissions Are Back On The Menu; Financial Advisers 'Cant Be Trusted'