The Financial Services Authority (FSA) has fined Norwich & Peterborough Building Society (N&P) £1.4 million for failing to give customers suitable advice over traded life settlement products from Keydata Investment Services.
N&P failed to properly assess the financial circumstances of many of the 3,200 clients it advised to invest in the products from Keydata, according to the regulator. It said the Norwich-based building society, which has agreed to pay £51 million redress to customers, designated clients as having a higher risk tolerance than was appropriate.
An independent review found that 65% of the N&P’s Keydata products sales from sample were unsuitable, according to the FSA final notice. Over half of the customers were advised by N&P to invest 20% or more of their total funds into Keydata products while over 10% were advised to invest more than 50% in traded life settlement investment plans.
N&P advice failings included:
- N&P emphasised that the Keydata products were not correlated with equity markets but did not make clear that traded life settlements were at least as risky.
- N&P gave the Keydata products a risk rating of four on a one-to-10 scale which was upgraded to six after the collapse of Lehman Brothers.
- N&P recommended Keydata products to customers who sought guaranteed income or capital growth.
- N&P advised clients to move from cash into Keydata products when they were not prepared to loss all their capital.
The FSA said N&P should have been aware that the 7-8% return offered by the Keydata products would make them particular attractive to certain customers seeking to generate income. The Keydata products were complex and N&P customers, who had an average age of 62, were inexperienced retail investors who would not have easily understood the risk involved, according to the regulator.
It said N&P advisers failed to consider other income generating products, which would have offered interest rates within a couple of interest points of the Keydata plans, with an element of capital protection.
The FSA revealed that N&P carried out a review in June 2007 when it realised that 30% of all investment products sold during the first quarter of 2007 were from Keydata. The N&P compliance team produced a report setting out concerns about the suitability of advice but no effective action was taken, it said.
The FSA has also investigated N&P over the sale of other investment products and has ordered an external review of advised sales. N&P will pay compensation to these clients where appropriate, the regulator said. N&P cooperated with the FSA and agreed to settle the case at an early stage, which entitled it to a 30% discount on its original £2 million fine despite making £2.7 million in commission from the sale of Keydata products.
‘N&P failed in its basic duty to provide suitable advice to its customers, despite an internal compliance report pointing out that there were problems as early as 2007,’ stated Tracey McDermott, FSA acting director for enforcement and financial crime.
‘Firms cannot treat customers fairly unless they pay attention to their financial circumstances and attitude to risk when they make recommendations. This is the only way to prevent widespread mis-selling like this.’
N&P chairman Gordon Horsfield apologised to the members of the building society and those customers advised to invest in Keydata products. ‘The society is committed to its members and has been deeply concerned for those customers who bought these products and who lost out following Keydata’s administration in 2009. Our aim in making ex gratia payments is to put that right and we are very sorry for the hardship and anxiety that they have suffered,’ he said.
New Model Adviser® revealed in January that N&P was to close its IFA arm and sign a deal with Aviva to provide tied advice through its branches. N&P chief executive Matthew Bullock also announced in January that he intended to retire.