Alistair Burns, chief executive of Tailormade Independent (TMI), faces a ban and the hefty fine after his firm advised clients, who were looking to transfer or switch their existing pensions into a self-invested personal pension scheme (Sipps), into unregulated investments, such as green oil, biofuels, farmland, and overseas property.
In a damning statement on its website, the FCA said Burns failed to ensure that TMI provided “suitable advice” to its clients or that he “fairly and clearly” disclosed his own personal conflicts of interest relating to investments.
TMI was dissolved on 9 July 2016.
Harlequin property
Between January 2010 and January 2013, around 1,661 TMI customers invested £112,420,985 in alternative investments, with over half of the funds being ploughed into Harlequin Property – an unregulated scheme promising ‘guaranteed returns’ of 10% a year based on building luxury villas in the Caribbean and other exotic locations.
In reality, no such payments materialised for the 6,000 mainly UK pension savers who invested almost £400m into the scheme.
Harlequin ran into trouble in 2013 when after the Financial Conduct Authority (FCA) issued several warnings, while the Serious Fraud Office is looking into the fund amid several legal cases.
In October, Harlequin Property SVG, the company behind the scheme, entered insolvency proceedings, a decision likely to result in massive losses for thousands of investors.
FSCS claims
The FCA ruling coincides with a warning from the Financial Services Compensation Scheme (FSCS) that it may impose an interim levy on life and pension advisers over the increasing number of claims over unregulated dodgy investments in self-invested personal pension schemes (Sipps).
The lifeboat fund revealed it received claims about Sipp advice against 171 advice firms in total for 2016/17, with just four of these firms accounting for 73% of all the claims it expected to pay out.
As of September 2016, the FSCS has upheld 919 claims of unsuitable advice against Tailormade, with compensation of over £40m paid to date.
Fast food advice?
Burns told the the regulator that he would compare TMI’s suitability process to the fast food chain McDonald’s.
“I use the McDonald’s analogy, which is that people came to us because they wanted a Sipp to invest in the underlying investment. Just like when they go into McDonald’s they expect to come out with a McDonald’s, not a KFC. Does that make sense?” he said in an interview with the FCA.
Burns went on to explain further, adding: “The point I’m trying to make is: people were sold the underlying investment. They came to us because they needed regulated advice about whether it was in their interests to invest, to move their preserved pensions into a Sipp. And then what they did with it was a matter of self-investment.”
FCA ruling
In the FCA’s view, the personal recommendations process used to advise customers, for which Burns was jointly responsible, was inadequate.
The regulator also says Burns received money through his position as a director and shareholder of an unregulated introducer also operating under the ‘Tailormade’ name, which referred clients to Tailormade Independent.
Payments included fees from clients for financial advice as well as commission paid for the introduction, which the FCA said created a conflict of interest that Burns failed to make clear to his clients.
Burns is fighting to overturn the ban and the fine in the Upper Tribunal.
