Final Notice
On , the Financial Conduct Authority issued a Final Notice to Geoffrey Edward Armin
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FINAL NOTICE
To:
Geoffrey Edward Armin
Individual
Reference
Number:
GEA00003
Date:
3 November 2023
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Authority hereby:
(1)
publishes a statement of Geoffrey Edward Armin’s misconduct for failing to
comply with Statements of Principle 2 and 7, pursuant to section 66 of the
Act; and
(2)
makes an order, pursuant to section 56 of the Act, prohibiting Mr Armin from
(a)
any senior management function in relation to any regulated activities
carried on by an authorised person, exempt person or exempt
professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person,
exempt person and exempt professional firm.
1.2.
The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
customers of Retirement and Pension Planning Services Limited (“RPPS”) which has
fallen to the Financial Services Compensation Scheme (“FSCS”). As at 23 October
2023, the FSCS has paid out £3,961,517.29 in compensation to customers of RPPS.
Had it not been for the compensation limit of £85,000, the total compensation
available to customers would have been £6,180,850.77. In these circumstances,
the Authority has agreed with Mr Armin that in lieu of the imposition of a financial
penalty, the sum of £200,000 be paid direct to the FSCS to contribute towards any
redress due to RPPS’s customers. This is in furtherance of the Authority’s consumer
protection objective. In light of the above and taking into account the exceptional
circumstances of the British Steel Pension Scheme (“BSPS”), the Authority hereby
publishes a statement of Mr Armin’s misconduct.
1.3.
The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
2.
SUMMARY OF REASONS
Mr Armin’s conduct
2.1.
Mr Armin was the sole person at RPPS approved by the Authority to perform the
controlled functions of CF1 (Director), CF10 (Compliance Oversight), CF11 (Money
Laundering Reporting) and CF30 (Customer). Following the introduction of the
Senior Managers and Certification Regime for all firms authorised by the Authority,
the controlled functions Mr Armin was approved to perform were replaced by senior
manager functions. As a result, from 9 December 2019, Mr Armin was approved to
perform the SMF3 (Executive Director), SMF 16 (Compliance Oversight) and SMF17
(Money Laundering Reporting Officer) senior manager functions.
2.2.
RPPS was a small firm which, during the Relevant Period, was authorised by the
Authority to advise on pension transfers and pension opt outs and to arrange (bring
about) deals in investments. Mr Armin was the only Pension Transfer Specialist at
RPPS and solely responsible for advising customers on Pension Transfers. He was
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also solely responsible for ensuring that RPPS complied with the requirements and
standards of the regulatory systems relevant to Pension Transfers.
2.3.
During the Relevant Period, Mr Armin advised 422 customers on the transfer of
their safeguarded pension benefits from a Defined Benefit Pension Scheme into an
alternative pension arrangement (such as a personal pension). This included 183
members of the British Steel Pension Scheme, 174 of whom transferred out of the
Scheme following Mr Armin’s Personal Recommendation. In advising his customers,
Mr Armin was seriously incompetent, in breach of Statement of Principle 2.
2.4.
Mr Armin failed to obtain information that was necessary to assessing whether a
Pension Transfer was suitable for a customer. In addition, he largely disregarded
vital information about customers which was necessary to assess whether it was
suitable for them to transfer their pension, such as:
(a)
their financial situation;
(b)
their income needs throughout retirement; and
(c)
how the customer’s existing pension benefits compared to the proposed
alternative pension.
2.5.
In a number of instances, he only informed customers of the consequences of their
decision to forego the valuable guaranteed benefits offered by their defined benefit
pension scheme after they had already transferred out of their scheme. Throughout
the advice process, he made omissions that gave rise to a risk of consumer
detriment.
2.6.
Mr Armin made recommendations to customers on the flawed assumption that a
pension transfer to meet the customers’ stated objectives was in their best interest,
and to recommend the product the customer wanted. As a result, Mr Armin gave
undue weight to customers’ stated desire to transfer their pension and to meet
various identified objectives, even where the identified objectives were not realistic
and the pension transfer would be to their detriment. For members of the British
Steel Pension Scheme, these failures were exacerbated by his failure to find out
about alternatives to transfer, including transferring into the new Defined Benefit
Pension Scheme offered by the sponsoring employers or remaining in the existing
scheme and moving into the Pension Protection Fund (which exists to protect
scheme members when their employer becomes insolvent). Either option may have
been entirely viable for some members, preserving their valuable guaranteed
income. This meant Mr Armin advised members of the BSPS to transfer without
considering the alternative options that were available to them under which they
would retain guaranteed income for life.
2.7.
The total value of transfers on which Mr Armin advised during the Relevant Period
was £125 million, £74 million of which related to the British Steel Pension Scheme.
The average transfer value for customers advised by Mr Armin during the Relevant
Period was approximately £298,000. RPPS received £2.2 million in fees for all
Defined Benefit Pension transfer advice, 55% of which was retained by RPPS and
Mr Armin (i.e. approximately £1.2 million).
Background to the misconduct
2.8.
Pensions are a traditional and tax-efficient way of saving money for retirement.
The benefits someone obtains from their pension, particularly under a Defined
Benefit Pension Scheme, can have a significant impact on their quality of life during
retirement and, in some circumstances, can affect when an individual can retire. A
Defined Benefit Pension Scheme is particularly valuable because it offers a secure,
guaranteed income for life to members, which typically increases each year in line
with inflation. Given the valuable benefits offered by Defined Benefit Pension
Schemes, the Authority considers that a firm should only recommend a transfer if
it can clearly demonstrate, based on contemporaneous evidence, that a transfer is
in the customer’s best interest.
2.9.
Customers who engage advisers and authorised firms to provide them with advice
in relation to their pensions place significant trust in them. It is therefore of
paramount importance that advisers exercise due skill, care and diligence when
advising customers regarding the transfer of their pensions, ensuring that the
advice given to a customer is suitable for them, having regard to all of the relevant
circumstances. This is even more important when customers have no option but to
make a decision regarding their pension (see, in particular, paragraph 2.10 below)
that could have a significant impact on their retirement. Where an adviser fails to
do so, it exposes customers to a significant risk of harm.
2.10. In 2017, the British Steel Pension Scheme (which was in place during the Relevant
Period) underwent significant restructuring, resulting in the BSPS being separated
from the sponsoring employers. The restructuring received formal approval from
The Pensions Regulator in August 2017 and took effect on 11 September 2017. As
a result of the restructuring, from early October 2017, members of the BSPS were
given the choice of transferring their benefits from the Scheme to a proposed new
Defined Benefit Pension Scheme or remaining in the Scheme which would
subsequently enter the Pension Protection Fund. Members also had the option of
transferring their benefits from the BSPS into a personal pension.
Non-compliant Personal Recommendations
2.11. Mr Armin’s recommendations that customers transfer out of their Defined Benefit
Pension Scheme did not comply with the relevant regulatory requirements because
of his omissions and his fundamental lack of understanding about his role as a
Pension Transfer Specialist, and this resulted in a significant risk of customers
transferring when it was not suitable for them to do so. In addition, suitability
reports issued by Mr Armin to customers made frequent use of exclusions and
caveats which often contradicted his recommendation that it was suitable for the
customer to transfer. As a result, the Authority considers that these suitability
reports did not enable customers to make an informed decision on whether
transferring out of their Defined Benefit Pension Scheme was right for them having
regard to all the relevant factors and risks.
2.12. Mr Armin failed to gather adequate information regarding, and give adequate
consideration to, customers’ financial situation and income needs throughout
retirement. Without this information, it was impossible for Mr Armin to determine
whether a customer would be reliant on their Defined Benefit Pension Scheme to
meet their income needs throughout retirement and whether they could bear the
risks of losing the guaranteed income they would otherwise receive for their lifetime
in order to achieve their objectives. Mr Armin also disregarded the transfer analysis
calculations he performed. These calculations were necessary to establish the rate
of growth a customer would need to achieve following the transfer to receive
benefits that were comparative to those offered by their Defined Benefit Pension
Scheme.
2.13. Mr Armin placed undue reliance on his customer’s stated objectives regardless of
whether they were realistic or financially viable. For many customers, it was only
after he had made his recommendation to transfer that he analysed and
documented whether a customer’s objectives were realistic and achievable. Indeed,
for some customers, he only performed this analysis after the transfer had already
been processed. Often, that analysis showed that those customers he had advised
to transfer out were at a significant risk of exhausting their pension funds at an
early stage of their retirement.
2.14. For example, Mr B, a member of the British Steel Pension Scheme, was advised by
Mr Armin to transfer so that he could retire early and leave the residue of his
pension fund to his family in the event of his death. Analysis undertaken by Mr
Armin showed that there was a real risk that Mr B’s early retirement plans would
result in his pension fund being completely depleted as early as the age of 67 and
he would not therefore have any funds left to leave to his family. Mr Armin should
therefore have identified that Mr B’s objectives were unfortunately unrealistic and
not achievable, and that a transfer was not, in the circumstances, suitable for Mr
B.
2.15. The deficiencies in Mr Armin’s advice process and recommendations meant that he
failed to obtain the necessary information regarding a customer and failed to take
reasonable steps to ensure that his advice that a customer transfer out of their
Defined Benefit Pension Scheme, was suitable for the customer. These deficiencies
also resulted in RPPS failing to comply with relevant regulatory requirement and
standards, in that RPPS failed to:
(a)
pay due regard to its customers’ interests and treat them fairly; and
(b)
take reasonable care to ensure the suitability of its advice to customers, who
were entitled to rely on RPPS’s, and Mr Armin’s, judgment.
2.16. Mr Armin’s failure to ensure that RPPS complied with its regulatory obligations was
further compounded by the fact that Mr Armin stopped procuring compliance advice
during the Relevant Period.
Potential detriment to consumers
2.17. The Authority has undertaken analysis of the potential losses suffered by
consumers where they transfer out of a Defined Benefit Pension Scheme when it is
not suitable for them to do so. In particular, analysis undertaken by the Authority
in 2017 calculated the estimate average redress arising from unsuitable Pension
Transfer advice to be approximately £58,000. Further analysis undertaken by the
Authority in 2019 calculated harm arising from unsuitable Pension Transfer advice
to be an average of £56,000.
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Mr Armin’s misconduct
2.18. By reason of the matters referred to in paragraphs 2.1 to 2.14 above, the Authority
considers that Mr Armin breached Statement of Principle 2 during the Relevant
Period, in that he failed to act with due skill, care and diligence when advising
customers on Pension Transfers because the advice he provided did not to comply
with regulatory requirements. In particular, Mr Armin:
(a)
failed to treat his customers fairly as he based his recommendation on the
flawed assumption that a transfer to meet the customer’s stated objectives
was in the customer’s best interests. In reality, many customers’ objectives
were either not realisable or financially viable, or could have been met by the
existing scheme;
(b)
failed to assess, or give any consideration to, whether customers were reliant
on the income from their Defined Benefit Pension Scheme and whether they
could financially bear the risks involved in a Pension Transfer, despite knowing
that, following the recommended transfer, customers’ retirement income
would be dependent on the performance of the new investment;
(c)
told customers who wished to retire early that their Defined Benefit Pension
Scheme offered better benefits if they wanted to retire early but nonetheless
advised the customer to transfer, without gathering information, undertaking
adequate analysis or explaining why he considered it was suitable for a
customer to transfer;
(d)
failed to undertake cashflow modelling analysis in a timely manner, and as a
result he did not give any meaningful consideration to, and deprived
customers of crucial information regarding, how their objectives impacted on
the sustainability of their pension fund throughout retirement and whether
their objectives were realistic and achievable;
(e)
failed to conduct any research on the alternative options available to members
of the BSPS for those customers who were members of the BSPS;
(f)
failed to undertake any or any adequate transfer analysis to compare the
benefits likely to be paid under the Defined Benefit Pension Scheme with
benefits provided by the personal pension, by failing to consistently obtain a
transfer value analysis report for customers he was advising. In fact, he
nullified any comparison he may have carried out by ignoring the results of
the comparison in arriving at his recommendation to the customer; and
(g)
failed to ensure Suitability Reports issued to customers contained adequate
information about the possible disadvantages of transferring out of their
Defined Benefit Pension Scheme (such as that their pension might run out
early in their retirement) having regard to the customer’s specific
circumstances and objectives. The warnings and Personal Recommendation
to transfer were often mutually contradictory, with no explanation given as to
why. As a result, the Suitability Reports issued by Mr Armin were not fair,
clear and not misleading.
2.19. In addition, by reason of the matters referred to in paragraphs 2.15 and 2.16
above, the Authority considers that Mr Armin breached Statement of Principle 7
during the Relevant Period, in that he failed to take reasonable steps to ensure that
RPPS complied with Principles 6 and 9 and the Authority’s Conduct of Business rules
2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R as a result of the deficiencies in his
Pension Transfer recommendations.
2.20. The Authority considers Mr Armin’s failings to be particularly serious because:
(a)
he may have caused detriment to a large number of customers, some of
whom were vulnerable due to their age and financial situation;
(b)
the potential effect of the transfer for many members of the BSPS advised by
Mr Armin would be to risk extinguishing their primary source of income in
retirement at an early stage of their retirement if the customer continued to
access their pension in accordance with Mr Armin’s recommendation which
was based on their stated objectives; and
(c)
Mr Armin obtained substantial financial benefits as a result of his failings, in
the form of, amongst other things, salary, dividends, pension contributions
and other drawings.
2.21. The Authority considers that the seriousness of Mr Armin’s misconduct between 8
June 2015 and 13 December 2017 demonstrates a serious lack of competence and
capability. The Authority therefore considers he is not fit and proper to perform (a)
any senior management function in relation to any regulated activities carried on
by an authorised person, exempt person or exempt professional firm, and (b) any
function in relation to the regulated activity of advising on Pension Transfers and
Pension Opt Outs carried on by an authorised person, exempt person and exempt
professional firm.
2.22. The Authority therefore hereby prohibits Mr Armin in respect of the functions set
out in paragraph 1.1(2) above.
2.23. The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
RPPS’s customers which has fallen to the FSCS. As at 23 October 2023, the FSCS
has paid out £3,961,517.29 in compensation to customers of RPPS. Had it not been
for the compensation limit of £85,000, the total compensation available to
customers would have been £6,180,850.77. In these circumstances, the Authority
has agreed with Mr Armin that in lieu of the imposition of a financial penalty, the
sum of £200,000 be paid direct to the FSCS to contribute towards any redress due
to RPPS’s customers. This is in furtherance of the Authority’s consumer protection
objective. In light of the above and taking into account the exceptional
circumstances of the BSPS, the Authority hereby publishes a statement of
Mr Armin’s misconduct for failing to comply with Statements of Principle 2 and 7.
2.24. The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
3.
DEFINITIONS
3.1.
The definitions below are used in this Notice:
“the Act” means the Financial Services and Markets Act 2000;
“APER” means the Statements of Principle and Code of Practice for Approved
Persons part of the Handbook;
“the Authority” means the Financial Conduct Authority;
“the British Steel Pension Scheme” or “BSPS” means the British Steel Defined
Benefit Pension Scheme that was in place during the period 8 June 2015 to 13
December 2017;
“BSPS 2” means the Defined Benefit Pension Scheme which replaced the BSPS after
13 December 2017 and was created after the RAA came into effect;
“CETV” means cash equivalent transfer value, which is the cash value of benefits
which have been accrued to, or in respect of, a member of a pension scheme at a
particular date. The CETV represents the expected costs of providing the member’s
benefits within the scheme and, in the case of a Defined Benefit Pension Scheme,
the CETV is determined using actuarial assumptions;
“COBS” means the Conduct of Business Sourcebook, part of the Handbook;
“Defined Benefit Pension Scheme” means an occupational pension scheme as
defined by Article 3(1) of the Financial Services and Markets Act (Regulated
Activities) Order 2001, namely where the amount paid to the beneficiary is based
on how many years the beneficiary has been employed and the salary the
beneficiary earned during that employment (rather than the value of their
investments);
“DEPP” means the Authority’s Decision Procedure and Penalties Manual;
“EG” means the Authority’s Enforcement Guide;
“FSCS” means the Financial Services Compensation Scheme;
“the Handbook” means the Authority’s Handbook of rules and guidance;
“Mr Armin” means Geoffrey Edward Armin;
“Pension Transfer” has the meaning given in the Handbook and includes the
transfer of deferred benefits from an occupational pension scheme (with
safeguarded benefits, such as a Defined Benefit Pension Scheme) to a personal
pension scheme;
“Pension Transfer Specialist” has the meaning given in the Handbook and includes
an individual appointed by a firm to check the suitability of, amongst other things,
a pension transfer, and who has passed the required examinations as specified in
the Training and Competence Sourcebook, part of the Handbook;
“Personal Recommendation” means a recommendation that is advice on transfer of
pension benefits into a personal pension or SIPP, and is presented as suitable for
the customer to whom it is made, or is based on a consideration of the customer’s
circumstances;
“PRIN” means the Authority’s Principles for Businesses;
“PPF” means the Pension Protection Fund;
“Regulated Apportionment Arrangement” or “RAA” means the statutory mechanism
that can be used in corporate restructuring situations where a sponsoring employer
of a Defined Benefit Pension Scheme stops participating in the pension scheme
(thereby freeing the sponsoring employer from its financial obligations to the
pension scheme) in order to avoid insolvency, subject to certain conditions being
met and the RAA being approved by The Pensions Regulator and the PPF;
“the Relevant Period” means 8 June 2015 to 13 December 2017;
“RPPS” means Retirement and Pension Planning Services Limited (dissolved on 19
October 2022);
“Statements of Principle” mean the Authority’s Statements of Principle and Code of
Practice for Approved Persons;
“Suitability Report” means the report which a firm must provide to its customer
under COBS 9.4 which, amongst other things, explains why the firm has concluded
that a recommended transaction is suitable for the client;
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“TVAS” stands for ‘transfer value analysis’ and is the comparison that a firm must
carry out in accordance with COBS 19.1.2R when a firm gives advice or a Personal
Recommendation about, amongst other things, a Pension Transfer;
“TVAS Report” means a document that reports to the customer in respect of the
comparison firms are required to carry on in accordance with COBS 19.1.2R; and
“the Voluntary Requirement” means the requirement imposed on RPPS on 15
December 2017.
4.
FACTS AND MATTERS
RPPS
4.1.
RPPS was a small firm based in Barnsley, South Yorkshire, which was first
authorised on 22 August 2011. RPPS had permission to carry on the regulated
activities of, amongst other things, advising on Pension Transfers, advising on
investments (excluding Pension Transfers) and arranging (bringing about) deals in
investments. On 15 December 2017, at the request of the Authority, RPPS applied
to the Authority to impose a voluntary requirement on RPPS, under which RPPS
was required to cease all regulated activities relating to defined benefit pension
transfer business. RPPS entered liquidation on 25 June 2018 and was dissolved on
19 October 2022.
4.2.
During the Relevant Period, Mr Armin, an experienced and qualified Pension
Transfer Specialist, performed the CF1 (Director), CF10 (Compliance Oversight),
CF11 (Money Laundering Reporting) and CF30 (Customer) controlled functions at
RPPS. Following the introduction of the Senior Managers and Certification Regime
for all firms authorised by the Authority on 9 December 2019, the controlled
functions Mr Armin was approved to perform were replaced by senior manager
functions. As a result, from that date, Mr Armin was approved to perform the SMF3
(Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money
Laundering Reporting Officer) senior manager functions. Mr Armin was also the sole
director and Pension Transfer Specialist at RPPS. Therefore, at all times during the
Relevant Period, Mr Armin was solely responsible for advising customers on Pension
Transfers and ensuring that RPPS complied with the regulatory requirements and
standards relevant to Pension Transfers.
The British Steel Pension Scheme
4.3.
Mr Armin advised 422 customers during the Relevant Period on the transfer of their
Defined Benefit Pension Scheme to an alternative pension arrangement, 183 of
whom were members of the BSPS.
4.4.
The BSPS was one of the largest Defined Benefit Pension Schemes in the UK, with
approximately 125,000 members and £15 billion in assets as of 30 June 2017. In
March 2017, the BSPS was closed to future accruals, which meant that no new
members could join it and existing members could no longer build up their benefits.
The BSPS also had an ongoing funding deficit.
4.5.
In early 2016, various options were being explored in relation to the BSPS as a
result of insolvency concerns relating to one of its sponsoring employers. These
options included seeking legislative changes which would have allowed pension
increases available under the BSPS to be reduced to the statutory minimum levels,
and the sale of one of the sponsoring employers. However, it was concluded that
the only way to avoid insolvency would be to enter into a Regulated Apportionment
Arrangement (“RAA”).
4.6.
On 11 August 2017, the Pensions Regulator gave its clearance for the RAA. Under
the RAA, the BSPS would receive £550 million and a 33% equity stake in one of
the sponsoring employers and the BSPS would transfer into the PPF. In addition, a
new Defined Benefit Pension Scheme (“BSPS 2”) was proposed by the sponsoring
employers in combination with the RAA proposal. The RAA received formal approval
on 11 September 2017, which resulted in the BSPS being separated from the
sponsoring employers.
4.7.
The consequences of the RAA were that members of the BSPS were required to
make a choice about two options offered by the BSPS, namely to either:
(a)
remain in the BSPS and therefore move into the PPF; or
(b)
transfer their benefits into BSPS 2.
4.8.
Alternatively, BSPS members could take a CETV and transfer their pension benefits
into an alternative pension arrangement (for example a personal pension scheme
or another occupational pension scheme held by the member).
4.9.
On 11 and 21 September 2017, the BSPS announced that it would separate from
the sponsoring employers, including the principal sponsor, Tata Steel UK.
Information about the options available to members was available on the BSPS’s
website from 11 August 2017 and in October 2017, the BSPS distributed
information packs to members about these options. Members were required to
choose their preferred option by 22 December 2017. Those who wanted to transfer
their pension benefits from the BSPS to a personal pension were required to submit
the required paperwork to execute the transfer by 16 February 2018.
4.10. The Rookes Review, an independent review of the support given to BSPS members
during restructuring and ‘Time to Choose’, stated that BSPS members experienced,
and were influenced by, a set of unique circumstances. This included the following:
(a)
distrust of their employer;
(b)
limited information on alternative options;
(c)
tight timescales to make a decision; and
(d)
limited support.
4.11. Some BSPS members were in vulnerable circumstances. For example, BSPS
members tended to have no other assets and relied more on income from their
Defined Benefit Pension Scheme than members of other schemes.
RPPS’s business model
Undocumented process and no compliance checks
4.12. Mr Armin never adequately documented the advice process for Pension Transfers.
Mr Armin had previously used compliance consultants to conduct periodic checks
on his files. However, during the Relevant Period Mr Armin did not procure any
independent reviews of RPPS’s business or Pension Transfer customer files. There
were no other independent checks carried out. Mr Armin failed to ensure that
adequate measures were in place to ensure that RPPS complied with its regulatory
obligations when he provided Personal Recommendations to customers in relation
to Pension Transfers.
RPPS’s advice process
4.13. During the Relevant Period, Mr Armin advised 422 customers on the transfer of
their safeguarded pension benefits in a Defined Benefit Pension Scheme into an
alternative pension arrangement. These customers transferred a total of £125
million out of their Defined Benefit Pension Schemes, with an average transfer
value of approximately £298,000. Of the 422 customers, 183 were members of the
BSPS, 174 (95%) of whom transferred out of the BSPS as a result of Mr Armin’s
Personal Recommendation. The majority of members who transferred out of the
BSPS were advised by Mr Armin between mid-August (the point at which the RAA
received clearance and information regarding the option available to customers was
initially publicised by the BSPS) and December 2017, by which time substantial
information about the options available to members of the BSPS had been made
public.
4.14. The majority of customers advised by Mr Armin were introduced to him by other
authorised financial advisers. In most instances, the introducing adviser gathered,
and provided Mr Armin, information about the customer and the Defined Benefit
Pension Scheme the customer was seeking to transfer, which included details of
the customer’s financial situation, personal circumstances, retirement objectives,
attitude to risk and the CETV of the pension the customer wished to transfer.
However, Mr Armin was responsible for ensuring that the necessary information
was obtained from the customer to assess whether a Pension Transfer was suitable
for the customer.
4.15. When making a Personal Recommendation in respect of a Pension Transfer, RPPS
was required to ensure that, amongst other things, the advice:
(a)
took into account the necessary information about the customer and their
personal circumstances;
(b)
was based on a proper analysis of the customer’s circumstances; and
(c)
included a comparison of the benefits under a Defined Benefit Pension
Scheme and the scheme recommended by RPPS, with any such comparison
including enough information for the customer to make an informed decision.
4.16. Mr Armin knew that Defined Benefit Pension Schemes offered valuable, guaranteed
benefits which would increase annually both up to and after the customer retired.
Mr Armin also knew the risks to which customers would be exposed if they
transferred out of a Defined Benefit Pension Scheme following his advice and the
potential impact this could have on the customer’s pension fund. For example, Mr
Armin brought to customers’ attention from the outset that, by transferring, the
pension benefits they received would be dependent on the performance of the
investment and if the customer drew income when investment returns were poor
or drew too much income, their pension fund could be depleted.
4.17. Despite this knowledge, there were numerous deficiencies in Mr Armin’s Pension
Transfer advice process and the quality of the Personal Recommendations he
provided to customers in relation to Pension Transfers, details of which are
contained in paragraphs 4.18 to 4.49 below. These findings are based on a review
of 30 files for customers whom Mr Armin advised to transfer out of the Defined
Benefit Pension Scheme during the Relevant Period, including 13 customers who
were members of the BSPS. Four of the 30 customers were seeking advice on the
transfer of multiple Defined Benefit Pension Schemes. Given the pervasive and
consistent failings across all the files, the Authority has inferred from the 30 files
reviewed that all of the Pension Transfer advice provided by Mr Armin to RPPS’s
customers did not comply with the relevant regulatory requirements. This is
because Mr Armin failed to obtain the necessary information about customers to
assess whether it was suitable for the customers to transfer (see paragraphs 4.21
to 4.27 below) and he failed to take reasonable steps to ensure that advice in
respect of a Pension Transfer was suitable for the customer by disregarding or, at
the very least, failing to give proper consideration to, information that was essential
to assessing suitability (see paragraphs 4.28 to 4.45 below). In the absence of a
proper assessment of suitability and adequate information regarding the customer,
Mr Armin should not have recommended that a customer transfer out of their
Defined Benefit Pension Scheme. However, by recommending that customers
transfer in these circumstances, he exposed his customers to a significant risk of
transferring out of their Defined Benefit Pension Scheme when it was not in their
best interests, or suitable for them, to transfer.
Flawed starting premise
4.18. 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. Mr Armin’s starting point was that
customers should be cautious and understand the benefits they would give up, but
he then placed heavy reliance on a customer’s stated wish to transfer their pension
and objectives when making his recommendation. His recommendations were
therefore made on a flawed assumption that a transfer to meet a customer’s stated
objectives was in their best interests, even though the customer’s objectives were
not realistic or financially viable. As a result, he recommended a transfer to most
of his customers.
4.19. Mr Armin, either personally or through the introducing adviser, set out for the
customer:
(a)
the features and benefits of the customer’s Defined Benefit Pension Scheme,
including how the CETV was calculated and what this represented; and
(b)
the different options that were available if the customer transferred their
pension benefits from their Defined Benefit Pension Scheme, including the
features and benefits of those options.
4.20. Mr Armin then put the choice of pension option (for example, a personal pension
with flexible benefits or an annuity) into the hands of his customer (with which he
stated he would have to agree). However, he failed to ensure that he obtained the
necessary information to assess suitability of a Pension Transfer for the customer,
and he failed to take reasonable steps to ensure that his Personal
Recommendations to customers in respect of a Pension Transfer were suitable for
them. In addition, he failed to provide customers with adequate information
regarding any such recommendation to enable the customer to make an informed
decision.
Failure to obtain the necessary information
Information regarding the BSPS
4.21. In order to advise compliantly, Mr Armin was required to obtain such information
about customers that were necessary to understand the essential facts about his
customers to assess whether a Pension Transfer was suitable, and where this
information had not been obtained, he should not have made a Personal
Recommendation to the customer in respect of a Pension Transfer. The Authority
considers that, for BSPS members, this included information about the customer’s
existing Defined Benefit Pension Scheme and an understanding of significant issues
that affected the BSPS including which alternative options might be available. Mr
Armin needed this information to consider how the loss of benefits available under
the customer’s existing Defined Benefit Pension Scheme might impact the
customer’s objectives and financial situation, to carry out a transfer analysis and
to determine whether a Pension Transfer was in the customer’s best interest.
4.22. The Authority considers that Mr Armin failed to properly inform himself, and gather
appropriate information regarding, the issues impacting the BSPS and members,
and the alternative options available to members of the BSPS, such as the new
Defined Benefit Pension Scheme proposed by the sponsoring employers.
4.23. In particular:
(a)
although Mr Armin had some awareness of the options available to members
following the approval of the RAA (referred to in paragraph 4.7 above), he
did not take steps to obtain information about those options or the decisions
customers had to make after the BSPS was separated from the sponsoring
employers. For example, none of the customer files reviewed by the Authority
for members advised by Mr Armin after October 2017 included copies of the
information packs issued by the BSPS to those members;
(b)
Mr Armin failed to undertake any independent research regarding the issues
surrounding the BSPS, such as the separation of the BSPS from the
sponsoring employer, the fact that the BSPS would be entering into the PPF
and that BSPS members had been given a specific period of time in which to
decide what they wanted to do with their pension benefits under the BSPS,
despite information regarding these matters being publicly available;
(c)
he did not take adequate steps to ensure he understood the benefits available
under the BSPS. For example, he considered that members of the BSPS could
not draw benefits from the BSPS before the normal retirement age of the
BSPS. Mr Armin did not understand when questioned in interview that
members were entitled to start drawing benefits from the BSPS from the age
of 55; and
(d)
he did not consistently obtain the necessary information regarding the BSPS
to undertake a transfer analysis. For example, in two customer files reviewed
by the Authority, the Suitability Report explicitly stated that a TVAS Report
had not been obtained due to limited information being received from the
BSPS. However, Mr Armin should have gathered the necessary information
from which to obtain a TVAS Report.
4.24. Had Mr Armin taken reasonable steps to obtain information about the RAA and the
options available to BSPS members (such as obtaining copies of the information
pack provided by the BSPS to his customers in October 2017 from the customer or
the BSPS directly, or identifying information available in the public domain
regarding the BSPS and the RAA), he would have identified that customers had an
option to retain guaranteed, inflation-proof income for life by moving into the new
Defined Benefit Pension Scheme proposed by the sponsoring employer. He then
should have given due consideration to these options when advising customers on
whether it was suitable for them to transfer.
4.25. As Mr Armin did not properly inform himself of the options available to BSPS
members, he failed to give any consideration to, or advise customers on, whether
it was in their best interest to transfer into the new Defined Benefit Pension Scheme
proposed by the sponsoring employers, or to remain in the BSPS and enter the
PPF. This is evident in the Suitability Reports issued by Mr Armin to BSPS members,
none of which included any reference to the new Defined Benefit Pension Scheme
(or the benefits available under that scheme) or any explanation that remaining in
the BSPS would mean they entered the PPF. He therefore advised BSPS members
on the premise that their only options were to either remain in the BSPS or transfer,
without giving due consideration to the unique circumstances that BSPS members
faced, given that the options available to them enabled them to retain guaranteed
income for their lifetime.
The extent of early retirement benefits
4.26. In the Suitability Reports issued to 20 customers (which includes both members of
the BSPS and members of other Defined Benefit Pension Schemes), Mr Armin
stated that the customer’s Defined Benefit Pension Scheme “would offer much
better benefits” if the customer wished to retire before the normal retirement age
of the scheme, including two customers who did not, in fact, wish to retire early,
but nonetheless recommended that the customer should transfer.
4.27. In all 20 cases, Mr Armin failed to gather the necessary information about the early
retirement benefits available under the customer’s existing Defined Benefit Pension
Scheme. He also failed to carry out any analysis in relation to the early retirement
benefits for 17 of the 20 customers, such that he was unable to compare the early
retirement benefits or explain to customers why the Defined Benefit Pension
Scheme offered better early retirement benefits than an alternative pension
arrangement. The Suitability Reports issued by Mr Armin to his customers were
also confusing because he did not explain why, despite his view regarding early
retirement benefits under a Defined Benefit Pension Scheme, it was nonetheless
suitable for the customer to transfer, and as a result, his views on early retirement
and his recommendation that the customer transfers were mutually contradictory.
Inadequate assessment of the suitability of a Pension Transfer
4.28. Mr Armin was required to take reasonable steps to ensure that Personal
Recommendations he provided in relation to Pension Transfers were suitable for his
customers. He needed to assess all the necessary information and undertake
sufficient analysis. The Authority found significant failures by Mr Armin when
assessing suitability, details of which are set out in paragraphs 4.29 to 4.45 below.
As a result of these failures, Mr Armin failed to take reasonable steps to ensure his
Personal Recommendation in respect of Pension Transfers were suitable for his
customers.
The customer’s financial situation
4.29. Gathering adequate information regarding a customer’s financial situation and
income needs throughout retirement is necessary to assess whether a Pension
Transfer is suitable for a customer. A customer’s financial situation and income
needs throughout retirement are relevant to determining whether it is appropriate
for a customer to forego the guaranteed income they would receive in
circumstances where:
(a)
the customer will be reliant on the income from their Defined Benefit Pension
Scheme in retirement; and
(b)
the customer may not have the capacity to bear losses in the investment into
which their pension benefits are transferred.
4.30. Mr Armin knew that he needed to take a customer’s financial situation into account.
However, he expressly stated to customers in the Suitability Report that he had
given no consideration to their financial situation in his assessment of the suitability
of a Pension Transfer. He did not therefore assess, or give any consideration to,
whether a customer would be reliant on the income from their Defined Benefit
Pension Scheme or whether they could bear the risks involved in a Pension
Transfer. By not doing so, Mr Armin failed to consider whether, in light of their
financial situation, the customer might not be able to forego the guaranteed income
they would receive under their Defined Benefit Pension Scheme. This was despite
his knowledge that, after the transfer, the benefits a customer received would be
dependent on the performance of the recommended investment.
4.31. The Authority found that, for 23 of the 30 customers for whom files have been
reviewed, there were indications that the customers were reliant on their Defined
Benefit Pension Scheme to meet their income needs throughout retirement. Their
Defined Benefit Pension Scheme pension was their primary source of income in
retirement. These customers did not have significant assets or other sources of
income which could be used to supplement any shortfalls in their income needs.
Given their financial situation, it was especially important for these customers to
retain guaranteed income because they did not have the capacity to bear the risks
of transferring. Mr Armin’s advice to transfer out exposed his customers to a risk
of not being able to meet their income needs throughout retirement because their
income would be dependent on the performance of the recommended investment.
The customer’s objectives
4.32. All of the 30 files reviewed had the same, generic objectives, especially those that
were members of the BSPS:
(a)
25 customers wanted to transfer so that they could access their pension
benefits flexibly;
(b)
24 customers wished to maximise or improve the death benefits that would
be available to their beneficiaries (such as a spouse, partner and/or children);
(c)
22 customers wished to retire and access their pension benefits before they
reached the Defined Benefit Pension Scheme’s normal retirement age; and
(d)
16 customers wanted to access the pension commencement lump sum (either
before the customer intended to draw income from their pension or at the
same time).
4.33. Mr Armin failed adequately to explore whether his customer’s objectives and
intentions were realisable, having regard to their wider personal and financial
circumstances. For example, for 23 customers, Mr Armin did not explain the
obvious trade-off between ‘having more flexibility’ and receiving guaranteed
income in retirement on which they were wholly reliant.
4.34. Further, Mr Armin did not, prior to making a Personal Recommendation, undertake
sufficient analysis, such as cashflow modelling, to determine whether the
customer’s objectives were realistic or achievable. Mr Armin knew that, once a
request for a Pension Transfer was submitted, it would be difficult to withdraw that
request. Nonetheless, for the majority of customers where cashflow modelling was
undertaken, Mr Armin only did the cashflow modelling after a Personal
Recommendation had been provided. In fact, for 61 BSPS members, the cashflow
modelling was undertaken after the transfer had been completed, and in a further
six cases, at a point at which the Authority considers it was highly unlikely that the
customer would be able to stop the transfer.
4.35. Mr Armin’s failure to undertake cashflow modelling in a timely manner meant that,
in making a Personal Recommendation, he could not give any meaningful
consideration to, and deprived customers of crucial information about:
(a)
the impact which an objective to access the pension early or take a lump sum
might have on the sustainability of their pension fund throughout retirement;
and
(b)
whether their objectives were realistic and therefore reasonably achievable.
4.36. The result for a number of customers whom Mr Armin advised to transfer out was
that they were placed at significant risk of completely depleting their pension fund
at an early stage of retirement. For example, Mr Armin advised Mr B to transfer out
of the BSPS and into a personal pension with flexible drawdown facilities so that Mr
B could: (a) retire between the age of 55 and 57 with an income of £15,000 a year;
(b) access his pension benefits flexibly; (c) be debt free by 55; and (d) pass on
death benefits to his family. Cashflow modelling undertaken by Mr Armin after he
had provided a Personal Recommendation to Mr B showed that Mr B’s intention to
retire as early as 55 and take an income of £15,000 a year could result in his
pension fund being exhausted by the age of 71, or 67 if he decided to take the tax-
free lump sum when he retired. As a result, it appeared that:
(a)
it was not realistic for Mr B to retire early or take as much income as he had
indicated;
(b)
there was a strong possibility that he would not have been able to achieve his
death benefit objective; and
(c)
there was a strong indication that it was not suitable for Mr B to transfer out
of the BSPS given his objectives had a significant impact on the long-term
sustainability of his primary pension provision.
4.37. The Authority also found evidence of numerous other customers who had
unrealistic and unachievable objectives and who were at significant risk of
completely depleting their pension fund at an early stage of retirement. For six
customers, all bar one of whom were members of the BSPS and had limited liquid
assets, the cashflow modelling undertaken by Mr Armin showed that their pension
funds could be depleted before the age of 67 (i.e. their state pension age). For
three of these customers, this was as early as the age of 63, which meant that they
would potentially have had no source of income to meet their retirement needs for
a significant period of time before they started receiving their state pension.
Furthermore, three of the six customers wished to pass on death benefits to their
family which they would not have achieved by transferring out of the BSPS. The
Authority also found that, for 63 customers, the cashflow modelling showed that,
if they transferred out of their Defined Benefit Pension Schemes, there was a risk
that the customers’ pension funds would be depleted within 10 years of their state
pension commencing.
4.38. The matters referred to in paragraphs 4.33 to 4.37 demonstrate that Mr Armin
consistently failed to analyse whether his customers’ objectives were realistic and
achievable, what the impact might be on those objectives of transferring out of
their Defined Benefit Pension Scheme and whether the customer could bear the
risks involved in the transfer to achieve those objectives, before he advised the
customer to transfer. More significantly, by not undertaking such analysis before
making a recommendation, and in some cases before the transfer was processed,
Mr Armin exposed customers to a risk that they would have no choice but to
proceed with a transfer in circumstances where the cashflow modelling showed
that:
(a)
to transfer on the basis of their stated objectives would have a detrimental
impact the sustainability of their pension fund; and
(b)
a transfer in order to achieve a customer’s objectives was not in their best
interest.
Transfer analysis
4.39. Mr Armin was required to compare the benefits likely to be paid under a Defined
Benefit Pension Scheme with the benefits afforded by the personal pension scheme
before he advised a customer to transfer out of a Defined Benefit Pension Scheme.
Mr Armin had to ensure that the comparison included enough information for the
customer to be able to make an informed decision.
4.40. Typically, this comparison would be contained in a TVAS Report, and the TVAS
Report would set out, amongst other things, a comparison relating to specific
benefits (for example, death benefits) and a critical yield calculation. The critical
yield is guidance based on set assumptions (expressed as a percentage) on the
level of return the customer’s investment will need to achieve up to the point they
started drawing from the pension to match the benefits they would receive from
their Defined Benefit Pension Scheme.
4.41. The Authority found that Mr Armin did not consistently obtain a TVAS Report or
conduct a comparison (as described in paragraph 4.39 above) when advising on
Pension Transfers. A TVAS Report or comparison was not undertaken for 17 of the
30 customer files reviewed by the Authority. For two of these customers, a TVAS
Report was not obtained because Mr Armin did not have sufficient information
regarding the Defined Benefit Pension Scheme in respect of which the customer
was seeking advice. The Authority found no evidence to demonstrate that Mr Armin
had taken steps to obtain the necessary information from the relevant schemes
such that he could obtain a TVAS Report for these clients.
4.42. Even where Mr Armin had obtained a TVAS Report, there were various deficiencies
in the comparison. In 12 TVAS Reports reviewed by the Authority, the following
deficiencies were identified:
(a)
the comparison did not take all of the customer’s relevant circumstances into
account. For example, none of the TVAS Reports included basic information
regarding the customer, such as their marital status, whether they had any
dependents, their attitude to risk and information regarding their health; and
(b)
the comparison did not include enough information for the customer to make
an informed decision. In particular, for 10 of the 12 customers for whom a
TVAS Report was obtained, no comparison at the customer’s desired
retirement age was undertaken. These customers would not, therefore, have
been in possession of sufficient information about the level of investment
return they would need to achieve up to their desired retirement age so that
the benefits they received following the transfer were comparable with the
benefits available under the Defined Benefit Pension Scheme at the same age.
In the absence of this information, the customers would not have been in a
position to make an informed decision.
4.43. Mr Armin told customers he did not take into account the results of the TVAS in
making a recommendation because the TVAS involved the use of assumptions.
Therefore, irrespective of whether the information contained in the TVAS Report
supported Mr Armin’s recommendation or not, that information would not have
changed his recommendation.
4.44. However, given the purpose of the comparison in a TVAS Report (as explained in
paragraphs 4.39 and 4.40 above), it was important that Mr Armin took the contents
of a TVAS Report, such as the critical yield, into account when making a Personal
Recommendation. It was also important that Mr Armin explained to customers: (a)
what the results of all relevant critical yield calculations meant in terms of the
benefits the customer could receive following the transfer; (b) whether the
comparison supported his recommendation; and (c) if the comparison did not
support the recommendation, why he considered it was nonetheless suitable for
the client to transfer. However, he failed to do so. For example, in three Suitability
Reports reviewed by the Authority, Mr Armin simply stated that the critical yield
was not achievable based on the recommended fund and the period within which
the customer wanted to transfer, without any explanation of (a) what this meant
in respect of the potential income the customer was able to draw from their pension
following the transfer compared with the income available from their Defined
Benefit Pension Scheme, or (b) why it was suitable for the customer to transfer
even though the critical yield did not support a recommendation to transfer. As a
result, Mr Armin’s customers could not have been in a position to make an informed
decision on whether to transfer or not.
4.45. For example, the TVAS Report obtained by Mr Armin for Mr C stated that to replace
the benefits provided by the BSPS, Mr C would need an investment return of 11%
per annum if Mr C retired at the normal retirement age of the BSPS, or 24.4% per
annum if he retired at 60. This was based on a comparison between the benefits
under the BSPS and a low risk investment fund. Mr Armin told Mr C that, in his
opinion, the critical yield (as at the normal retirement age of the BSPS) was not
achievable based on the time horizon to retirement and the potential returns from
the recommended investment fund. However, Mr Armin did not explain that this
meant that the BSPS offered better benefits to Mr C than he would receive if he
transferred. Furthermore, the Suitability Report included no reference to the critical
yield at the client’s desired retirement age, despite Mr C’s top priority being the
ability to retire early.
Impact of Mr Armin’s failings
4.46. As a direct result of Mr Armin’s failure to gather the necessary information about
his customers (as detailed in paragraphs 4.21 to 4.27 above) and his failure to take
reasonable steps to ensure his advice in respect of Pension Transfers was suitable
for his customers (as detailed in paragraphs 4.28 to 4.45 above), all of the Pension
Transfer advice provided by Mr Armin to RPPS’s customers did not comply with the
relevant regulatory requirements. As a result, there was a significant risk of
customers advised by Mr Armin transferring out of their Defined Benefit Pension
Scheme when it was not suitable for them to do so.
4.47. In particular, the deficiencies in the information that Mr Armin gathered about his
customers (as detailed in paragraphs 4.21 to 4.27) meant that Mr Armin was not
in a position to assess whether a Pension Transfer was suitable for his customers,
or make a Personal Recommendation which complied with the relevant regulatory
requirements. In fact, he should not have advised customers to transfer where he
had not gathered the necessary information. This was exacerbated by Mr Armin
disregarding information about his customers (such as their personal financial
circumstances) in forming his recommendation.
4.48. Furthermore, as detailed in paragraphs 4.28 to 4.45 above, there were serious
shortcomings in Mr Armin’s assessment of the suitability of a customer transferring
out of their Defined Benefit Pension Scheme because he:
(a)
did not assess, having regard to a customer’s financial situation, whether a
customer was reliant on the income from their pension or could bear the risks
of transferring and foregoing the guaranteed income;
(b)
did not analyse whether a customer’s objectives were realistic and achievable
prior to making a Personal Recommendation, and in a number of cases prior
to the transfer; and
(c)
failed to consistently obtain TVAS Reports when advising customers, and
disregarded information contained in TVAS Reports where these were
obtained, such that his customers could not have been in a position to make
an informed decision on whether transferring was in their best interest.
4.49. This caused particular risk to members of the BSPS advised by Mr Armin, who
transferred a total of £74 million from the BSPS into personal pensions. From
September 2017 onwards, members of the BSPS had the option to transfer into a
new Defined Benefit Pension Scheme proposed by the sponsoring employers and
could thereby have retained the guaranteed benefits available under that scheme.
4.50. The Authority has undertaken analysis of the potential losses consumers suffer
where they transfer out of a Defined Benefit Pension Scheme when it is not suitable
for them to do so. Analysis undertaken by the Authority in 2017 calculated the
estimate average redress arising from unsuitable Pension Transfer advice to be
approximately £58,000. Further analysis undertaken by the Authority in 2019
calculated harm arising from unsuitable Pension Transfer advice to be £56,000.
Benefit derived by Mr Armin
4.51. RPPS operated a contingent charging model, whereby customers were only liable
to pay fees to RPPS if they proceeded with Mr Armin’s Personal Recommendation
to transfer out of their Defined Benefit Pension Scheme. Those fees for Pension
Transfers provided by Mr Armin and RPPS were based on a percentage of the CETV
of the pension the customer wished to transfer. For the majority of customers, the
fees payable to RPPS were deducted from their pension upon completion of the
Pension Transfer.
4.52. During the Relevant Period, RPPS generated £2.2 million in revenue from fees for
Pension Transfer business it carried on, 78% of which was generated in 2017. £1.19
million of the total revenue generated during the Relevant Period was attributable
to transfers by members of the BSPS, 96% of which was generated from BSPS
members that Mr Armin advised in 2017. RPPS and Mr Armin retained 55% of the
fees received all customers advised, with the remaining 45% being payable to the
introducer. RPPS and Mr Armin therefore retained approximately £1.2 million of the
revenue generated from the Pension Transfer business undertaken, which was used
to pay various benefits to Mr Armin, including salary, dividends, pension
contributions and other drawings.
5.
FAILINGS
5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.
5.2.
By reason of the facts and matters set out above, Mr Armin breached Statements
of Principle 2 and 7.
5.3.
Mr Armin breached Statement of Principle 2 during the Relevant Period, in that he
failed to act with due skill, care and diligence when advising customers on Pension
Transfers. His failings meant that the advice he provided did not comply with
regulatory requirements and standards, which created a significant risk that his
advice that a customer should transfer out of their Defined Benefit Pension Scheme
would not be suitable for them. In particular, Mr Armin:
(a)
failed to treat his customers fairly as he based his recommendation on the
flawed assumption that a transfer to meet a customer’s stated objectives was
in the customer’s best interests. In reality, many customers’ objectives were
either not realisable or financially viable, or could have been met by the
existing scheme;
(b)
did not take into account customers’ financial situation when assessing
whether it was suitable for them to transfer out of their Defined Benefit
Pension Scheme. As a result, he failed to assess, or give due consideration
to, whether customers would be reliant on the income from their Defined
Benefit Pension Scheme or whether they could financially bear the risks
involved in a Pension Transfer. He did this despite knowing that, following the
recommended transfer, customers’ retirement income would be dependent
on the performance of the new investment;
(c)
failed to undertake cashflow modelling analysis in a timely manner, and as a
result he could not give any meaningful consideration to, or provide crucial
information to customers about, how their objectives impacted on the
sustainability of their pension fund throughout retirement and whether their
objectives were realistic or achievable. In several cases, he only carried out
cashflow modelling after he had recommended the customer to transfer. For
61 customers, the cashflow modelling was undertaken only after the transfer
had been completed. In a further six cases, the cashflow modelling was not
undertaken until a point where the Authority considers it was highly unlikely
that the customer would be able to stop the transfer. Many of his customers
who transferred out of their Defined Benefit Pension Schemes were at risk of
depleting their pension fund at an early stage of retirement, and in some
cases before their state retirement age, without having any understanding or
knowledge of this risk and without being in a position to mitigate this risk
once it became known to them (for example by not transferring out of their
Defined Benefit Pension Scheme);
(d)
failed to conduct any research or obtain information about the alternative
options available to members of the BSPS to transferring out of the BSPS
following the RAA. Customers were therefore advised on the premise that
their only options were to remain in the BSPS or transfer into an alternative
pension arrangement. As a result, he failed to give any consideration to, or
advise customers on, whether it would be in their interest to transfer into the
new Defined Benefit Pension Scheme proposed by the sponsoring employers,
or to remain in the BSPS and enter the PPF;
(e)
failed to undertake any or any adequate transfer analysis (TVAS) to compare
the benefits likely to be paid under the Defined Benefit Pension Scheme with
benefits afforded by the personal pension or other pension scheme into which
it was proposed that the client should transfer. In 17 out of 30 cases reviewed,
he carried out no comparison between the schemes at all. In other cases, he
carried out a comparison but did not take all relevant circumstances into
account or did not include enough information for the customer to make an
informed decision. In any event, Mr Armin rendered futile any comparison he
may have carried out, by disregarding the conclusions of any such analysis in
arriving at his recommendation to the customer;
(f)
told customers who wished to retire early that their Defined Benefit Pension
Scheme offered better benefits if they wanted to retire early but nonetheless
advised them to transfer, without:
(i)
gathering any information or undertaking analysis such that he could
compare the early retirement benefits; or
(ii)
explaining why he considered it was suitable for a customer to transfer
despite his view regarding the early retirement benefits under the
Defined Benefit Pension Scheme; and
(g)
failed to ensure Suitability Reports he issued to customers contained
adequate information about the possible disadvantages of transferring out of
their Defined Benefit Pension Scheme (for example, that their pension might
run out early in their retirement), having regard to the customer’s specific
circumstances and objectives. Although Suitability Reports contained caveats
and risk warnings regarding Pension Transfers, the Authority considers that
the Personal Recommendation was unclear and risked being confusing for
customers. The warnings and Personal Recommendation to transfer were
often mutually contradictory, with no explanation. The Suitability Reports
were not, therefore, clear, fair and not misleading.
Statement of Principle 7
5.4.
Mr Armin also breached Statement of Principle 7 during the Relevant Period, in that
he failed to take reasonable steps to ensure that RPPS complied with Principles 6
and 9 and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R as a result of the
deficiencies in his advice process and Personal Recommendations he provided to
customers that it was suitable for them to transfer.
5.5.
As a consequence of his actions, Mr Armin failed to meet the regulatory standards
applicable to a Pension Transfer Specialist and in performing significant influence
controlled functions. The Authority therefore considers he is not fit and proper to
perform:
(a)
any senior management function in relation to any regulated activities carried
on by an authorised person, exempt person or exempt professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person, exempt
person and exempt professional firm.
6.
SANCTION
Financial penalty
6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5B sets out the details of the five-step framework that applies in
respect of financial penalties imposed on individuals in non-market abuse cases.
Step 1: disgorgement
6.2.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual
of the financial benefit derived directly from the breach where it is practicable to
quantify this.
6.3.
Mr Armin derived direct financial benefit from the advice fees generated from
customers who transferred out of their Defined Benefit Pension Scheme as a result
of his deficient Personal Recommendations in respect of Pension Transfers. Pension
Transfers represented 93% of RPPS’s business during the Relevant Period. The
amount received by Mr Armin during the Relevant Period was £953,133. In
addition, Mr Armin received £221,904 after the Relevant Period which was directly
attributable to Mr Armin’s misconduct. The Authority considers that 93% of the
total amount he received (less any quantifiable tax liabilities he incurred) stemmed
directly from his breaches. This is £816,784.
6.4.
The Authority has charged interest on Mr Armin’s benefits at 8% per year from
receipt to the date of this Notice, amounting to £381,945.38.
6.5.
Step 1 is therefore £1,198,729 (rounded down to the nearest £1).
Step 2: the seriousness of the breach
6.6.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects
the seriousness of the breach. That figure is based on a percentage of the
individual’s relevant income. The individual’s relevant income is the gross amount
of all benefits received by the individual from the employment in connection with
which the breach occurred, and for the period of the breach.
6.7.
The period of Mr Armin’s breaches of Statement of Principle 2 and 7 was from 8
June 2015 to 13 December 2017. The Authority considers Mr Armin’s relevant
income for this period to be £953,133.
6.8.
In deciding on the percentage of the relevant income that forms the basis of the
step 2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%. This range is divided into five fixed levels which
represent, on a sliding scale, the seriousness of the breach; the more serious the
breach, the higher the level. For penalties imposed on individuals in non-market
abuse cases there are the following five levels:
Level 1 – 0%
Level 2 – 10%
Level 3 – 20%
Level 4 – 30%
Level 5 – 40%
6.9.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the impact and nature of the breach, and whether it was committed
deliberately or recklessly. DEPP 6.5B.2G(12) lists factors likely to be considered
‘level 4 or 5 factors’. Of these, the Authority considers the following factors to be
relevant.
Impact of the breach
6.10. Mr Armin’s benefits stemming from his breaches were substantial. In particular,
RPPS’s revenue from Pension Transfer business significantly increased after it
started advising members of the BSPS. This increase in revenue benefited Mr Armin
because it enabled him to obtain substantially larger benefits from RPPS, which he
would not have been able to do had it not been for his breaches (DEPP
6.11. Mr Armin’s breach of Statement of Principle 2 also caused a risk of loss to a large
number of consumers who transferred out of the Defined Benefit Pension Scheme
as a result of Mr Armin’s advice (DEPP 6.5B.2G(8)(b).
6.12. Furthermore, as a direct result of Mr Armin’s failings, all of RPPS’s customers that
were advised to transfer out of their Defined Benefit Pension Scheme during the
Relevant Period, and in particular customers that were members of the BSPS, many
of whom were in a vulnerable position, were at significant risk of doing so when it
was not suitable for them to do so or in their best interest (DEPP 6.5B.2G(8)(d)).
Nature of the breach
6.13. Mr Armin’s failings occurred over a sustained period (over two years) and resulted
in a significant risk of loss for all the customers he advised in respect of Pension
Transfers during the Relevant Period (DEPP 6.5B.2G(9)(b)).
6.14. Mr Armin was also an experienced Pension Transfer Specialist, and throughout the
Relevant Period he failed to exercise adequate skill, care and diligence when
advising customers on Pension Transfers (DEPP 6.5B.2G(9)(j)). He was also solely
responsible for the matters that gave rise to the breaches (DEPP 6.5B.2G(9)(l)).
Whether the breach was deliberate and/or reckless
6.15. The breaches committed by Mr Armin were as a result of his serious lack of
competence, rather than deliberate or reckless acts (DEPP 6.5B.2G(11)).
Level of seriousness
6.16. DEPP 6.5B.2G(12) lists factors lists factors likely to be considered ‘level 4 or 5
factors’. The Authority considers that the fact that Mr Armin’s breaches caused a
significant risk of loss to customers is particularly relevant (DEPP 6.5B.2G(12)(a)).
6.17. DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that Mr Armin’s breaches of Statements of Principle 2 and 7
were committed negligently (DEPP 6.5B.2G(13)(d)).
6.18. Taking all of these factors into account, the Authority considers the seriousness of
the breach to be level 4 and so the Step 2 figure is 30% of £953,133.
6.19. Step 2 is therefore £285,939.90.
Step 3: mitigating and aggravating factors
6.20. Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.
6.21. The Authority has considered whether any of the mitigating or aggravating factors
listed in DEPP 6.5B.3G, or any other such factors, apply in this case and has
concluded that none applies to a material extent, such that the penalty ought to be
increased or decreased.
6.22. Step 3 is therefore £285,939.90.
Step 4: adjustment for deterrence
6.23. Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after Step
3 is insufficient to deter the individual who committed the breach, or others, from
committing further or similar breaches, then the Authority may increase the
penalty.
6.24. The Authority considers that the Step 3 figure of £285,939.90 represents a
sufficient deterrent to Mr Armin and others, and so has not increased the penalty
at Step 4.
6.25. Step 4 is therefore £285,939.90.
Step 5: settlement discount
6.26. Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty is
to be imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have been
payable will be reduced to reflect the stage at which the Authority and the individual
reached agreement. The settlement discount does not apply to the disgorgement
of any benefit calculated at Step 1. No settlement discount applies.
6.27. Step 5 is therefore £285,900 (rounded down to the nearest £100).
Conclusion as to financial penalty
6.28. Having applied the five-step framework set out in DEPP, the appropriate level of
financial penalty to be imposed on Mr Armin is £1,484,629.
6.29. The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
RPPS’s customers which has fallen to the FSCS. As at 23 October 2023, the FSCS
has paid out £3,961,517.29 in compensation to customers of RPPS. Had it not been
for the compensation limit of £85,000, the total compensation available to
customers would have been £6,180,850.77. In these circumstances, the Authority
has agreed with Mr Armin that in lieu of the imposition of a financial penalty, the
sum of £200,000 be paid direct to the FSCS to contribute towards any redress due
to RPPS’s customers. This is in furtherance of the Authority’s consumer protection
objective. In light of the above and taking into account the exceptional
circumstances of the BSPS, the Authority hereby publishes a statement of
Mr Armin’s misconduct.
6.30. The Authority’s policy in relation to the imposition of a public censure is set out in
Chapter 6 of DEPP. DEPP sets out non exhaustive factors that may be of particular
relevance in determining whether it is appropriate to issue a public censure rather
than impose a financial penalty. DEPP 6.4.2G (5) includes that it may be a factor
(depending on the nature and seriousness of the breach) in favour of a public
censure rather a financial penalty including but not limited to where a person has
taken steps to ensure that those who have suffered loss due to the breach are fully
compensated for those losses. Whilst the full amount of any losses due to
Mr Armin’s breaches are not yet quantified, they may be significant. In light of this,
and the FSCS having already paid out £3,935,661.36 to RPPS’s customers, the
Authority has agreed that the sum of £200,000 should be paid direct to the FSCS
by Mr Armin.
6.31. The Authority has had regard to the fact that Mr Armin has agreed to pay direct to
the FSCS assets that would otherwise be used to satisfy any financial penalty
imposed by the Authority to be used towards any redress due to RPPS’s customers.
On that basis, the Authority has not imposed a financial penalty on Mr Armin but
instead hereby publishes on its website this Notice as a statement of Mr Armin’s
misconduct under section 66 of the Act.
6.32. The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
6.33. The Authority has had regard to the guidance in Chapter 9 of EG in considering
whether to impose a prohibition order on him. The Authority has the power to
prohibit individuals under section 56 of the Act.
6.34. The Authority considers that it is appropriate and proportionate in all the
circumstances to prohibit Mr Armin from performing the following functions because
he is not a fit and proper person to perform such functions due to his lack of
competence and capability:
(a)
any senior management function in relation to any regulated activity carried
on by an authorised person, exempt person or exempt professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person, exempt
person or exempt professional firm.
7.
PROCEDURAL MATTERS
7.1.
This Notice is given to Mr Armin under and in accordance with section 390 of the
Act.
7.2.
The following statutory rights are important.
Decision maker
7.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
7.4.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those provisions,
the Authority must publish such information about the matter to which this notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority may
not publish information if such publication would, in the opinion of the Authority,
be unfair to you or prejudicial to the interests of consumers or detrimental to the
stability of the UK financial system.
7.5.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Authority contacts
7.6.
For more information concerning this matter generally, contact Kingsley Moore
(direct line: 0207 066 0401 / email: Kingsley.Moore2@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
RELEVANT STATUORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the
operational objective of securing an appropriate degree of protection for consumers
(section 1C).
1.2.
Section 56 of the Act provides that the Authority may make an order prohibiting an
individual from performing a specified function, any function falling within a
specified description or any function, if it appears to the Authority that that
individual is not a fit and proper person to perform functions in relation to a
regulated activity carried on by an authorised person, exempt person or a person
to whom, as a result of Part 20, the general prohibition does not apply in relation
to that activity. Such an order may relate to a specified regulated activity, any
regulated activity falling within a specified description, or all regulated activities.
1.3.
Section 66 of the Act provides that the Authority may take action against a person
if it appears to the Authority that he is guilty of misconduct and the Authority is
satisfied that it is appropriate in all the circumstances to take action against him.
A person is guilty of misconduct if, while an approved person, he has failed to
comply with a statement of principle issued under section 64 of the Act, or has
been knowingly concerned in a contravention by a relevant authorised person of a
relevant requirement imposed on that authorised person.
2.
RELEVANT REGULATORY PROVISIONS
Principles for Businesses
2.1.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Handbook. They derive their
authority from the Authority’s rule making powers set out in the Act.
2.2.
During the Relevant Period, Principle 6 stated:
“A firm must pay due regard to the interests of its customers and treat them fairly.”
2.3.
During the Relevant Period, Principle 9 stated:
“A firm must take reasonable care to ensure the suitability of its advice and
discretionary decisions for any customer who is entitled to rely upon its judgment.”
Statements of Principle and Code of Practice for Approval Persons
2.4.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
(“APER”) have been issued under section 64 of the Act.
2.5.
During the Relevant Period, Statement of Principle 2 stated:
“An approved person must act with due skill, care and diligence in carrying out his
accountable function.”
2.6.
During the Relevant Period, Statement of Principle 7 stated:
“An approved person performing an accountable [significant-influence (in place
until 6 March 2016)] or [higher management (in place from 7 March 2016
onwards)] function must take reasonable steps to ensure that the business of the
firm for which they are responsible in their accountable function complies with the
relevant requirements and standards of the regulatory system.”
2.7.
‘Accountable higher management functions’ includes any accountable function that
is an Authority controlled function that is a significant influence function. Significant
influence functions include the following controlled functions: CF1 (Director), CF10
(Compliance Oversight) and CF11 (Money Laundering Reporting).
2.8.
The Code of Practice for Approved Persons sets out descriptions of conduct which,
in the opinion of the Authority, do not comply with a Statement of Principle. It also
sets out factors which, in the Authority’s opinion, are to be taken into account in
determining whether an approved person’s conduct complies with a Statement of
Principle.
Conduct of Business sourcebook
2.9.
The following rules and guidance in COBS (as were in place during the Relevant
Period) are relevant to the suitability of Pension Transfer advice given to customers.
2.10. COBS 2.1.1R states that a firm must act honestly, fairly and professionally in
accordance with the best interests of its client.
2.11. COBS 9.2.1R states that:
(1)
A firm must take reasonable steps to ensure that a personal recommendation,
or a decision to trade, is suitable for its client.
(2)
When making the personal recommendation or managing his investments,
the firm must obtain the necessary information regarding the client’s:
(a)
knowledge and experience in the investment field relevant to the
specific type of designated investment or service;
(b)
financial situation; and
(c)
investment objectives;
so as to enable the firm to make the recommendation, or take the decision,
which is suitable for him.
2.12. COBS 9.2.2R(1) states that a firm must obtain from the client such information as
is necessary for the firm to understand the essential facts about him and have a
reasonable basis for believing, giving due consideration to the nature and extent of
the service provided, that the specific transaction to be recommended, or entered
into in the course of managing:
(a)
meets his investment objectives;
(b)
is such that he is able financially to bear any related investment risks
consistent with his investment objectives; and
(c)
is such that he has the necessary experience and knowledge in order to
understand the risks involved in the transaction or in the management of his
portfolio.
2.13. COBS 9.2.2R(3) states that the information regarding the financial situation of a
client must include, where relevant, information on the source and extent of his
regular income, his assets, including liquid assets, investments and real property,
and his regular financial commitments.
2.14. COBS 9.2.6R states that, if a firm does not obtain the necessary information to
assess suitability, it must not make a personal recommendation to the client or
take a decision to trade for him.
2.15. COBS 19.1.2R states that a firm must:
(1)
compare the benefits likely (on reasonable assumptions) to be paid under a
defined benefit pension scheme or other pension scheme with safeguarded
benefits with the benefits afforded by a personal pension, stakeholder pension
scheme or other pension scheme with flexible benefits, before it advises a
retail client to transfer out of a defined benefit pension scheme or other
pension scheme with safeguarded benefits;
(2)
ensure that that comparison includes enough information for the client to be
able to make an information decision;
(3)
gives the client a copy of the comparison, drawing the client’s attention to the
factors that do and do not support the firm’s advice, in good time, and in any
case no later than when the key features document is provided; and
(4)
takes reasonable steps to ensure that the client understands the firm’s
comparison and its advice.
2.16. COBS 19.1.6G states that when advising a client who is, or is eligible to be, a
member of a Defined Benefit Pension Scheme or other scheme with safeguarded
benefits whether to transfer, convert or opt-out, a firm should start by assuming
that a transfer, conversion or opt-out will not be suitable. A firm should only
consider a transfer, conversion or opt out to be suitable if it can clearly
demonstrate, on contemporary evidence, that the transfer, conversion or opt-out
is in the client’s best interests.
2.17. COBS 19.1.7G states that when a firm advises a client on a pension transfer,
pension conversion or pension opt-out, it should consider the client’s attitude to
risk, including, where relevant, in relation to the rate of investment that would have
to be achieved to replicate the benefits being given up.
The Fit and Proper Test for Approved Persons
2.18. The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing
the fitness and propriety of a candidate for a controlled function. FIT is also relevant
in assessing the continuing fitness and propriety of an approved person.
2.19. FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability
and financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.20. The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the
Enforcement Guide (“EG”).
2.21. EG 9.1 states that the Authority may exercise this power where it considers that,
to achieve any of its regulatory objectives, it is appropriate either to prevent an
individual from performing any functions in relation to regulated activities or to
restrict the functions which he may perform.
DEPP
2.22. Chapter 6 of DEPP sets out the Authority’s statement of policy with respect to the
imposition and amount of financial penalties under the Act
FINAL NOTICE
To:
Geoffrey Edward Armin
Individual
Reference
Number:
GEA00003
Date:
3 November 2023
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Authority hereby:
(1)
publishes a statement of Geoffrey Edward Armin’s misconduct for failing to
comply with Statements of Principle 2 and 7, pursuant to section 66 of the
Act; and
(2)
makes an order, pursuant to section 56 of the Act, prohibiting Mr Armin from
(a)
any senior management function in relation to any regulated activities
carried on by an authorised person, exempt person or exempt
professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person,
exempt person and exempt professional firm.
1.2.
The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
customers of Retirement and Pension Planning Services Limited (“RPPS”) which has
fallen to the Financial Services Compensation Scheme (“FSCS”). As at 23 October
2023, the FSCS has paid out £3,961,517.29 in compensation to customers of RPPS.
Had it not been for the compensation limit of £85,000, the total compensation
available to customers would have been £6,180,850.77. In these circumstances,
the Authority has agreed with Mr Armin that in lieu of the imposition of a financial
penalty, the sum of £200,000 be paid direct to the FSCS to contribute towards any
redress due to RPPS’s customers. This is in furtherance of the Authority’s consumer
protection objective. In light of the above and taking into account the exceptional
circumstances of the British Steel Pension Scheme (“BSPS”), the Authority hereby
publishes a statement of Mr Armin’s misconduct.
1.3.
The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
2.
SUMMARY OF REASONS
Mr Armin’s conduct
2.1.
Mr Armin was the sole person at RPPS approved by the Authority to perform the
controlled functions of CF1 (Director), CF10 (Compliance Oversight), CF11 (Money
Laundering Reporting) and CF30 (Customer). Following the introduction of the
Senior Managers and Certification Regime for all firms authorised by the Authority,
the controlled functions Mr Armin was approved to perform were replaced by senior
manager functions. As a result, from 9 December 2019, Mr Armin was approved to
perform the SMF3 (Executive Director), SMF 16 (Compliance Oversight) and SMF17
(Money Laundering Reporting Officer) senior manager functions.
2.2.
RPPS was a small firm which, during the Relevant Period, was authorised by the
Authority to advise on pension transfers and pension opt outs and to arrange (bring
about) deals in investments. Mr Armin was the only Pension Transfer Specialist at
RPPS and solely responsible for advising customers on Pension Transfers. He was
3
also solely responsible for ensuring that RPPS complied with the requirements and
standards of the regulatory systems relevant to Pension Transfers.
2.3.
During the Relevant Period, Mr Armin advised 422 customers on the transfer of
their safeguarded pension benefits from a Defined Benefit Pension Scheme into an
alternative pension arrangement (such as a personal pension). This included 183
members of the British Steel Pension Scheme, 174 of whom transferred out of the
Scheme following Mr Armin’s Personal Recommendation. In advising his customers,
Mr Armin was seriously incompetent, in breach of Statement of Principle 2.
2.4.
Mr Armin failed to obtain information that was necessary to assessing whether a
Pension Transfer was suitable for a customer. In addition, he largely disregarded
vital information about customers which was necessary to assess whether it was
suitable for them to transfer their pension, such as:
(a)
their financial situation;
(b)
their income needs throughout retirement; and
(c)
how the customer’s existing pension benefits compared to the proposed
alternative pension.
2.5.
In a number of instances, he only informed customers of the consequences of their
decision to forego the valuable guaranteed benefits offered by their defined benefit
pension scheme after they had already transferred out of their scheme. Throughout
the advice process, he made omissions that gave rise to a risk of consumer
detriment.
2.6.
Mr Armin made recommendations to customers on the flawed assumption that a
pension transfer to meet the customers’ stated objectives was in their best interest,
and to recommend the product the customer wanted. As a result, Mr Armin gave
undue weight to customers’ stated desire to transfer their pension and to meet
various identified objectives, even where the identified objectives were not realistic
and the pension transfer would be to their detriment. For members of the British
Steel Pension Scheme, these failures were exacerbated by his failure to find out
about alternatives to transfer, including transferring into the new Defined Benefit
Pension Scheme offered by the sponsoring employers or remaining in the existing
scheme and moving into the Pension Protection Fund (which exists to protect
scheme members when their employer becomes insolvent). Either option may have
been entirely viable for some members, preserving their valuable guaranteed
income. This meant Mr Armin advised members of the BSPS to transfer without
considering the alternative options that were available to them under which they
would retain guaranteed income for life.
2.7.
The total value of transfers on which Mr Armin advised during the Relevant Period
was £125 million, £74 million of which related to the British Steel Pension Scheme.
The average transfer value for customers advised by Mr Armin during the Relevant
Period was approximately £298,000. RPPS received £2.2 million in fees for all
Defined Benefit Pension transfer advice, 55% of which was retained by RPPS and
Mr Armin (i.e. approximately £1.2 million).
Background to the misconduct
2.8.
Pensions are a traditional and tax-efficient way of saving money for retirement.
The benefits someone obtains from their pension, particularly under a Defined
Benefit Pension Scheme, can have a significant impact on their quality of life during
retirement and, in some circumstances, can affect when an individual can retire. A
Defined Benefit Pension Scheme is particularly valuable because it offers a secure,
guaranteed income for life to members, which typically increases each year in line
with inflation. Given the valuable benefits offered by Defined Benefit Pension
Schemes, the Authority considers that a firm should only recommend a transfer if
it can clearly demonstrate, based on contemporaneous evidence, that a transfer is
in the customer’s best interest.
2.9.
Customers who engage advisers and authorised firms to provide them with advice
in relation to their pensions place significant trust in them. It is therefore of
paramount importance that advisers exercise due skill, care and diligence when
advising customers regarding the transfer of their pensions, ensuring that the
advice given to a customer is suitable for them, having regard to all of the relevant
circumstances. This is even more important when customers have no option but to
make a decision regarding their pension (see, in particular, paragraph 2.10 below)
that could have a significant impact on their retirement. Where an adviser fails to
do so, it exposes customers to a significant risk of harm.
2.10. In 2017, the British Steel Pension Scheme (which was in place during the Relevant
Period) underwent significant restructuring, resulting in the BSPS being separated
from the sponsoring employers. The restructuring received formal approval from
The Pensions Regulator in August 2017 and took effect on 11 September 2017. As
a result of the restructuring, from early October 2017, members of the BSPS were
given the choice of transferring their benefits from the Scheme to a proposed new
Defined Benefit Pension Scheme or remaining in the Scheme which would
subsequently enter the Pension Protection Fund. Members also had the option of
transferring their benefits from the BSPS into a personal pension.
Non-compliant Personal Recommendations
2.11. Mr Armin’s recommendations that customers transfer out of their Defined Benefit
Pension Scheme did not comply with the relevant regulatory requirements because
of his omissions and his fundamental lack of understanding about his role as a
Pension Transfer Specialist, and this resulted in a significant risk of customers
transferring when it was not suitable for them to do so. In addition, suitability
reports issued by Mr Armin to customers made frequent use of exclusions and
caveats which often contradicted his recommendation that it was suitable for the
customer to transfer. As a result, the Authority considers that these suitability
reports did not enable customers to make an informed decision on whether
transferring out of their Defined Benefit Pension Scheme was right for them having
regard to all the relevant factors and risks.
2.12. Mr Armin failed to gather adequate information regarding, and give adequate
consideration to, customers’ financial situation and income needs throughout
retirement. Without this information, it was impossible for Mr Armin to determine
whether a customer would be reliant on their Defined Benefit Pension Scheme to
meet their income needs throughout retirement and whether they could bear the
risks of losing the guaranteed income they would otherwise receive for their lifetime
in order to achieve their objectives. Mr Armin also disregarded the transfer analysis
calculations he performed. These calculations were necessary to establish the rate
of growth a customer would need to achieve following the transfer to receive
benefits that were comparative to those offered by their Defined Benefit Pension
Scheme.
2.13. Mr Armin placed undue reliance on his customer’s stated objectives regardless of
whether they were realistic or financially viable. For many customers, it was only
after he had made his recommendation to transfer that he analysed and
documented whether a customer’s objectives were realistic and achievable. Indeed,
for some customers, he only performed this analysis after the transfer had already
been processed. Often, that analysis showed that those customers he had advised
to transfer out were at a significant risk of exhausting their pension funds at an
early stage of their retirement.
2.14. For example, Mr B, a member of the British Steel Pension Scheme, was advised by
Mr Armin to transfer so that he could retire early and leave the residue of his
pension fund to his family in the event of his death. Analysis undertaken by Mr
Armin showed that there was a real risk that Mr B’s early retirement plans would
result in his pension fund being completely depleted as early as the age of 67 and
he would not therefore have any funds left to leave to his family. Mr Armin should
therefore have identified that Mr B’s objectives were unfortunately unrealistic and
not achievable, and that a transfer was not, in the circumstances, suitable for Mr
B.
2.15. The deficiencies in Mr Armin’s advice process and recommendations meant that he
failed to obtain the necessary information regarding a customer and failed to take
reasonable steps to ensure that his advice that a customer transfer out of their
Defined Benefit Pension Scheme, was suitable for the customer. These deficiencies
also resulted in RPPS failing to comply with relevant regulatory requirement and
standards, in that RPPS failed to:
(a)
pay due regard to its customers’ interests and treat them fairly; and
(b)
take reasonable care to ensure the suitability of its advice to customers, who
were entitled to rely on RPPS’s, and Mr Armin’s, judgment.
2.16. Mr Armin’s failure to ensure that RPPS complied with its regulatory obligations was
further compounded by the fact that Mr Armin stopped procuring compliance advice
during the Relevant Period.
Potential detriment to consumers
2.17. The Authority has undertaken analysis of the potential losses suffered by
consumers where they transfer out of a Defined Benefit Pension Scheme when it is
not suitable for them to do so. In particular, analysis undertaken by the Authority
in 2017 calculated the estimate average redress arising from unsuitable Pension
Transfer advice to be approximately £58,000. Further analysis undertaken by the
Authority in 2019 calculated harm arising from unsuitable Pension Transfer advice
to be an average of £56,000.
7
Mr Armin’s misconduct
2.18. By reason of the matters referred to in paragraphs 2.1 to 2.14 above, the Authority
considers that Mr Armin breached Statement of Principle 2 during the Relevant
Period, in that he failed to act with due skill, care and diligence when advising
customers on Pension Transfers because the advice he provided did not to comply
with regulatory requirements. In particular, Mr Armin:
(a)
failed to treat his customers fairly as he based his recommendation on the
flawed assumption that a transfer to meet the customer’s stated objectives
was in the customer’s best interests. In reality, many customers’ objectives
were either not realisable or financially viable, or could have been met by the
existing scheme;
(b)
failed to assess, or give any consideration to, whether customers were reliant
on the income from their Defined Benefit Pension Scheme and whether they
could financially bear the risks involved in a Pension Transfer, despite knowing
that, following the recommended transfer, customers’ retirement income
would be dependent on the performance of the new investment;
(c)
told customers who wished to retire early that their Defined Benefit Pension
Scheme offered better benefits if they wanted to retire early but nonetheless
advised the customer to transfer, without gathering information, undertaking
adequate analysis or explaining why he considered it was suitable for a
customer to transfer;
(d)
failed to undertake cashflow modelling analysis in a timely manner, and as a
result he did not give any meaningful consideration to, and deprived
customers of crucial information regarding, how their objectives impacted on
the sustainability of their pension fund throughout retirement and whether
their objectives were realistic and achievable;
(e)
failed to conduct any research on the alternative options available to members
of the BSPS for those customers who were members of the BSPS;
(f)
failed to undertake any or any adequate transfer analysis to compare the
benefits likely to be paid under the Defined Benefit Pension Scheme with
benefits provided by the personal pension, by failing to consistently obtain a
transfer value analysis report for customers he was advising. In fact, he
nullified any comparison he may have carried out by ignoring the results of
the comparison in arriving at his recommendation to the customer; and
(g)
failed to ensure Suitability Reports issued to customers contained adequate
information about the possible disadvantages of transferring out of their
Defined Benefit Pension Scheme (such as that their pension might run out
early in their retirement) having regard to the customer’s specific
circumstances and objectives. The warnings and Personal Recommendation
to transfer were often mutually contradictory, with no explanation given as to
why. As a result, the Suitability Reports issued by Mr Armin were not fair,
clear and not misleading.
2.19. In addition, by reason of the matters referred to in paragraphs 2.15 and 2.16
above, the Authority considers that Mr Armin breached Statement of Principle 7
during the Relevant Period, in that he failed to take reasonable steps to ensure that
RPPS complied with Principles 6 and 9 and the Authority’s Conduct of Business rules
2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R as a result of the deficiencies in his
Pension Transfer recommendations.
2.20. The Authority considers Mr Armin’s failings to be particularly serious because:
(a)
he may have caused detriment to a large number of customers, some of
whom were vulnerable due to their age and financial situation;
(b)
the potential effect of the transfer for many members of the BSPS advised by
Mr Armin would be to risk extinguishing their primary source of income in
retirement at an early stage of their retirement if the customer continued to
access their pension in accordance with Mr Armin’s recommendation which
was based on their stated objectives; and
(c)
Mr Armin obtained substantial financial benefits as a result of his failings, in
the form of, amongst other things, salary, dividends, pension contributions
and other drawings.
2.21. The Authority considers that the seriousness of Mr Armin’s misconduct between 8
June 2015 and 13 December 2017 demonstrates a serious lack of competence and
capability. The Authority therefore considers he is not fit and proper to perform (a)
any senior management function in relation to any regulated activities carried on
by an authorised person, exempt person or exempt professional firm, and (b) any
function in relation to the regulated activity of advising on Pension Transfers and
Pension Opt Outs carried on by an authorised person, exempt person and exempt
professional firm.
2.22. The Authority therefore hereby prohibits Mr Armin in respect of the functions set
out in paragraph 1.1(2) above.
2.23. The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
RPPS’s customers which has fallen to the FSCS. As at 23 October 2023, the FSCS
has paid out £3,961,517.29 in compensation to customers of RPPS. Had it not been
for the compensation limit of £85,000, the total compensation available to
customers would have been £6,180,850.77. In these circumstances, the Authority
has agreed with Mr Armin that in lieu of the imposition of a financial penalty, the
sum of £200,000 be paid direct to the FSCS to contribute towards any redress due
to RPPS’s customers. This is in furtherance of the Authority’s consumer protection
objective. In light of the above and taking into account the exceptional
circumstances of the BSPS, the Authority hereby publishes a statement of
Mr Armin’s misconduct for failing to comply with Statements of Principle 2 and 7.
2.24. The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
3.
DEFINITIONS
3.1.
The definitions below are used in this Notice:
“the Act” means the Financial Services and Markets Act 2000;
“APER” means the Statements of Principle and Code of Practice for Approved
Persons part of the Handbook;
“the Authority” means the Financial Conduct Authority;
“the British Steel Pension Scheme” or “BSPS” means the British Steel Defined
Benefit Pension Scheme that was in place during the period 8 June 2015 to 13
December 2017;
“BSPS 2” means the Defined Benefit Pension Scheme which replaced the BSPS after
13 December 2017 and was created after the RAA came into effect;
“CETV” means cash equivalent transfer value, which is the cash value of benefits
which have been accrued to, or in respect of, a member of a pension scheme at a
particular date. The CETV represents the expected costs of providing the member’s
benefits within the scheme and, in the case of a Defined Benefit Pension Scheme,
the CETV is determined using actuarial assumptions;
“COBS” means the Conduct of Business Sourcebook, part of the Handbook;
“Defined Benefit Pension Scheme” means an occupational pension scheme as
defined by Article 3(1) of the Financial Services and Markets Act (Regulated
Activities) Order 2001, namely where the amount paid to the beneficiary is based
on how many years the beneficiary has been employed and the salary the
beneficiary earned during that employment (rather than the value of their
investments);
“DEPP” means the Authority’s Decision Procedure and Penalties Manual;
“EG” means the Authority’s Enforcement Guide;
“FSCS” means the Financial Services Compensation Scheme;
“the Handbook” means the Authority’s Handbook of rules and guidance;
“Mr Armin” means Geoffrey Edward Armin;
“Pension Transfer” has the meaning given in the Handbook and includes the
transfer of deferred benefits from an occupational pension scheme (with
safeguarded benefits, such as a Defined Benefit Pension Scheme) to a personal
pension scheme;
“Pension Transfer Specialist” has the meaning given in the Handbook and includes
an individual appointed by a firm to check the suitability of, amongst other things,
a pension transfer, and who has passed the required examinations as specified in
the Training and Competence Sourcebook, part of the Handbook;
“Personal Recommendation” means a recommendation that is advice on transfer of
pension benefits into a personal pension or SIPP, and is presented as suitable for
the customer to whom it is made, or is based on a consideration of the customer’s
circumstances;
“PRIN” means the Authority’s Principles for Businesses;
“PPF” means the Pension Protection Fund;
“Regulated Apportionment Arrangement” or “RAA” means the statutory mechanism
that can be used in corporate restructuring situations where a sponsoring employer
of a Defined Benefit Pension Scheme stops participating in the pension scheme
(thereby freeing the sponsoring employer from its financial obligations to the
pension scheme) in order to avoid insolvency, subject to certain conditions being
met and the RAA being approved by The Pensions Regulator and the PPF;
“the Relevant Period” means 8 June 2015 to 13 December 2017;
“RPPS” means Retirement and Pension Planning Services Limited (dissolved on 19
October 2022);
“Statements of Principle” mean the Authority’s Statements of Principle and Code of
Practice for Approved Persons;
“Suitability Report” means the report which a firm must provide to its customer
under COBS 9.4 which, amongst other things, explains why the firm has concluded
that a recommended transaction is suitable for the client;
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“TVAS” stands for ‘transfer value analysis’ and is the comparison that a firm must
carry out in accordance with COBS 19.1.2R when a firm gives advice or a Personal
Recommendation about, amongst other things, a Pension Transfer;
“TVAS Report” means a document that reports to the customer in respect of the
comparison firms are required to carry on in accordance with COBS 19.1.2R; and
“the Voluntary Requirement” means the requirement imposed on RPPS on 15
December 2017.
4.
FACTS AND MATTERS
RPPS
4.1.
RPPS was a small firm based in Barnsley, South Yorkshire, which was first
authorised on 22 August 2011. RPPS had permission to carry on the regulated
activities of, amongst other things, advising on Pension Transfers, advising on
investments (excluding Pension Transfers) and arranging (bringing about) deals in
investments. On 15 December 2017, at the request of the Authority, RPPS applied
to the Authority to impose a voluntary requirement on RPPS, under which RPPS
was required to cease all regulated activities relating to defined benefit pension
transfer business. RPPS entered liquidation on 25 June 2018 and was dissolved on
19 October 2022.
4.2.
During the Relevant Period, Mr Armin, an experienced and qualified Pension
Transfer Specialist, performed the CF1 (Director), CF10 (Compliance Oversight),
CF11 (Money Laundering Reporting) and CF30 (Customer) controlled functions at
RPPS. Following the introduction of the Senior Managers and Certification Regime
for all firms authorised by the Authority on 9 December 2019, the controlled
functions Mr Armin was approved to perform were replaced by senior manager
functions. As a result, from that date, Mr Armin was approved to perform the SMF3
(Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money
Laundering Reporting Officer) senior manager functions. Mr Armin was also the sole
director and Pension Transfer Specialist at RPPS. Therefore, at all times during the
Relevant Period, Mr Armin was solely responsible for advising customers on Pension
Transfers and ensuring that RPPS complied with the regulatory requirements and
standards relevant to Pension Transfers.
The British Steel Pension Scheme
4.3.
Mr Armin advised 422 customers during the Relevant Period on the transfer of their
Defined Benefit Pension Scheme to an alternative pension arrangement, 183 of
whom were members of the BSPS.
4.4.
The BSPS was one of the largest Defined Benefit Pension Schemes in the UK, with
approximately 125,000 members and £15 billion in assets as of 30 June 2017. In
March 2017, the BSPS was closed to future accruals, which meant that no new
members could join it and existing members could no longer build up their benefits.
The BSPS also had an ongoing funding deficit.
4.5.
In early 2016, various options were being explored in relation to the BSPS as a
result of insolvency concerns relating to one of its sponsoring employers. These
options included seeking legislative changes which would have allowed pension
increases available under the BSPS to be reduced to the statutory minimum levels,
and the sale of one of the sponsoring employers. However, it was concluded that
the only way to avoid insolvency would be to enter into a Regulated Apportionment
Arrangement (“RAA”).
4.6.
On 11 August 2017, the Pensions Regulator gave its clearance for the RAA. Under
the RAA, the BSPS would receive £550 million and a 33% equity stake in one of
the sponsoring employers and the BSPS would transfer into the PPF. In addition, a
new Defined Benefit Pension Scheme (“BSPS 2”) was proposed by the sponsoring
employers in combination with the RAA proposal. The RAA received formal approval
on 11 September 2017, which resulted in the BSPS being separated from the
sponsoring employers.
4.7.
The consequences of the RAA were that members of the BSPS were required to
make a choice about two options offered by the BSPS, namely to either:
(a)
remain in the BSPS and therefore move into the PPF; or
(b)
transfer their benefits into BSPS 2.
4.8.
Alternatively, BSPS members could take a CETV and transfer their pension benefits
into an alternative pension arrangement (for example a personal pension scheme
or another occupational pension scheme held by the member).
4.9.
On 11 and 21 September 2017, the BSPS announced that it would separate from
the sponsoring employers, including the principal sponsor, Tata Steel UK.
Information about the options available to members was available on the BSPS’s
website from 11 August 2017 and in October 2017, the BSPS distributed
information packs to members about these options. Members were required to
choose their preferred option by 22 December 2017. Those who wanted to transfer
their pension benefits from the BSPS to a personal pension were required to submit
the required paperwork to execute the transfer by 16 February 2018.
4.10. The Rookes Review, an independent review of the support given to BSPS members
during restructuring and ‘Time to Choose’, stated that BSPS members experienced,
and were influenced by, a set of unique circumstances. This included the following:
(a)
distrust of their employer;
(b)
limited information on alternative options;
(c)
tight timescales to make a decision; and
(d)
limited support.
4.11. Some BSPS members were in vulnerable circumstances. For example, BSPS
members tended to have no other assets and relied more on income from their
Defined Benefit Pension Scheme than members of other schemes.
RPPS’s business model
Undocumented process and no compliance checks
4.12. Mr Armin never adequately documented the advice process for Pension Transfers.
Mr Armin had previously used compliance consultants to conduct periodic checks
on his files. However, during the Relevant Period Mr Armin did not procure any
independent reviews of RPPS’s business or Pension Transfer customer files. There
were no other independent checks carried out. Mr Armin failed to ensure that
adequate measures were in place to ensure that RPPS complied with its regulatory
obligations when he provided Personal Recommendations to customers in relation
to Pension Transfers.
RPPS’s advice process
4.13. During the Relevant Period, Mr Armin advised 422 customers on the transfer of
their safeguarded pension benefits in a Defined Benefit Pension Scheme into an
alternative pension arrangement. These customers transferred a total of £125
million out of their Defined Benefit Pension Schemes, with an average transfer
value of approximately £298,000. Of the 422 customers, 183 were members of the
BSPS, 174 (95%) of whom transferred out of the BSPS as a result of Mr Armin’s
Personal Recommendation. The majority of members who transferred out of the
BSPS were advised by Mr Armin between mid-August (the point at which the RAA
received clearance and information regarding the option available to customers was
initially publicised by the BSPS) and December 2017, by which time substantial
information about the options available to members of the BSPS had been made
public.
4.14. The majority of customers advised by Mr Armin were introduced to him by other
authorised financial advisers. In most instances, the introducing adviser gathered,
and provided Mr Armin, information about the customer and the Defined Benefit
Pension Scheme the customer was seeking to transfer, which included details of
the customer’s financial situation, personal circumstances, retirement objectives,
attitude to risk and the CETV of the pension the customer wished to transfer.
However, Mr Armin was responsible for ensuring that the necessary information
was obtained from the customer to assess whether a Pension Transfer was suitable
for the customer.
4.15. When making a Personal Recommendation in respect of a Pension Transfer, RPPS
was required to ensure that, amongst other things, the advice:
(a)
took into account the necessary information about the customer and their
personal circumstances;
(b)
was based on a proper analysis of the customer’s circumstances; and
(c)
included a comparison of the benefits under a Defined Benefit Pension
Scheme and the scheme recommended by RPPS, with any such comparison
including enough information for the customer to make an informed decision.
4.16. Mr Armin knew that Defined Benefit Pension Schemes offered valuable, guaranteed
benefits which would increase annually both up to and after the customer retired.
Mr Armin also knew the risks to which customers would be exposed if they
transferred out of a Defined Benefit Pension Scheme following his advice and the
potential impact this could have on the customer’s pension fund. For example, Mr
Armin brought to customers’ attention from the outset that, by transferring, the
pension benefits they received would be dependent on the performance of the
investment and if the customer drew income when investment returns were poor
or drew too much income, their pension fund could be depleted.
4.17. Despite this knowledge, there were numerous deficiencies in Mr Armin’s Pension
Transfer advice process and the quality of the Personal Recommendations he
provided to customers in relation to Pension Transfers, details of which are
contained in paragraphs 4.18 to 4.49 below. These findings are based on a review
of 30 files for customers whom Mr Armin advised to transfer out of the Defined
Benefit Pension Scheme during the Relevant Period, including 13 customers who
were members of the BSPS. Four of the 30 customers were seeking advice on the
transfer of multiple Defined Benefit Pension Schemes. Given the pervasive and
consistent failings across all the files, the Authority has inferred from the 30 files
reviewed that all of the Pension Transfer advice provided by Mr Armin to RPPS’s
customers did not comply with the relevant regulatory requirements. This is
because Mr Armin failed to obtain the necessary information about customers to
assess whether it was suitable for the customers to transfer (see paragraphs 4.21
to 4.27 below) and he failed to take reasonable steps to ensure that advice in
respect of a Pension Transfer was suitable for the customer by disregarding or, at
the very least, failing to give proper consideration to, information that was essential
to assessing suitability (see paragraphs 4.28 to 4.45 below). In the absence of a
proper assessment of suitability and adequate information regarding the customer,
Mr Armin should not have recommended that a customer transfer out of their
Defined Benefit Pension Scheme. However, by recommending that customers
transfer in these circumstances, he exposed his customers to a significant risk of
transferring out of their Defined Benefit Pension Scheme when it was not in their
best interests, or suitable for them, to transfer.
Flawed starting premise
4.18. 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. Mr Armin’s starting point was that
customers should be cautious and understand the benefits they would give up, but
he then placed heavy reliance on a customer’s stated wish to transfer their pension
and objectives when making his recommendation. His recommendations were
therefore made on a flawed assumption that a transfer to meet a customer’s stated
objectives was in their best interests, even though the customer’s objectives were
not realistic or financially viable. As a result, he recommended a transfer to most
of his customers.
4.19. Mr Armin, either personally or through the introducing adviser, set out for the
customer:
(a)
the features and benefits of the customer’s Defined Benefit Pension Scheme,
including how the CETV was calculated and what this represented; and
(b)
the different options that were available if the customer transferred their
pension benefits from their Defined Benefit Pension Scheme, including the
features and benefits of those options.
4.20. Mr Armin then put the choice of pension option (for example, a personal pension
with flexible benefits or an annuity) into the hands of his customer (with which he
stated he would have to agree). However, he failed to ensure that he obtained the
necessary information to assess suitability of a Pension Transfer for the customer,
and he failed to take reasonable steps to ensure that his Personal
Recommendations to customers in respect of a Pension Transfer were suitable for
them. In addition, he failed to provide customers with adequate information
regarding any such recommendation to enable the customer to make an informed
decision.
Failure to obtain the necessary information
Information regarding the BSPS
4.21. In order to advise compliantly, Mr Armin was required to obtain such information
about customers that were necessary to understand the essential facts about his
customers to assess whether a Pension Transfer was suitable, and where this
information had not been obtained, he should not have made a Personal
Recommendation to the customer in respect of a Pension Transfer. The Authority
considers that, for BSPS members, this included information about the customer’s
existing Defined Benefit Pension Scheme and an understanding of significant issues
that affected the BSPS including which alternative options might be available. Mr
Armin needed this information to consider how the loss of benefits available under
the customer’s existing Defined Benefit Pension Scheme might impact the
customer’s objectives and financial situation, to carry out a transfer analysis and
to determine whether a Pension Transfer was in the customer’s best interest.
4.22. The Authority considers that Mr Armin failed to properly inform himself, and gather
appropriate information regarding, the issues impacting the BSPS and members,
and the alternative options available to members of the BSPS, such as the new
Defined Benefit Pension Scheme proposed by the sponsoring employers.
4.23. In particular:
(a)
although Mr Armin had some awareness of the options available to members
following the approval of the RAA (referred to in paragraph 4.7 above), he
did not take steps to obtain information about those options or the decisions
customers had to make after the BSPS was separated from the sponsoring
employers. For example, none of the customer files reviewed by the Authority
for members advised by Mr Armin after October 2017 included copies of the
information packs issued by the BSPS to those members;
(b)
Mr Armin failed to undertake any independent research regarding the issues
surrounding the BSPS, such as the separation of the BSPS from the
sponsoring employer, the fact that the BSPS would be entering into the PPF
and that BSPS members had been given a specific period of time in which to
decide what they wanted to do with their pension benefits under the BSPS,
despite information regarding these matters being publicly available;
(c)
he did not take adequate steps to ensure he understood the benefits available
under the BSPS. For example, he considered that members of the BSPS could
not draw benefits from the BSPS before the normal retirement age of the
BSPS. Mr Armin did not understand when questioned in interview that
members were entitled to start drawing benefits from the BSPS from the age
of 55; and
(d)
he did not consistently obtain the necessary information regarding the BSPS
to undertake a transfer analysis. For example, in two customer files reviewed
by the Authority, the Suitability Report explicitly stated that a TVAS Report
had not been obtained due to limited information being received from the
BSPS. However, Mr Armin should have gathered the necessary information
from which to obtain a TVAS Report.
4.24. Had Mr Armin taken reasonable steps to obtain information about the RAA and the
options available to BSPS members (such as obtaining copies of the information
pack provided by the BSPS to his customers in October 2017 from the customer or
the BSPS directly, or identifying information available in the public domain
regarding the BSPS and the RAA), he would have identified that customers had an
option to retain guaranteed, inflation-proof income for life by moving into the new
Defined Benefit Pension Scheme proposed by the sponsoring employer. He then
should have given due consideration to these options when advising customers on
whether it was suitable for them to transfer.
4.25. As Mr Armin did not properly inform himself of the options available to BSPS
members, he failed to give any consideration to, or advise customers on, whether
it was in their best interest to transfer into the new Defined Benefit Pension Scheme
proposed by the sponsoring employers, or to remain in the BSPS and enter the
PPF. This is evident in the Suitability Reports issued by Mr Armin to BSPS members,
none of which included any reference to the new Defined Benefit Pension Scheme
(or the benefits available under that scheme) or any explanation that remaining in
the BSPS would mean they entered the PPF. He therefore advised BSPS members
on the premise that their only options were to either remain in the BSPS or transfer,
without giving due consideration to the unique circumstances that BSPS members
faced, given that the options available to them enabled them to retain guaranteed
income for their lifetime.
The extent of early retirement benefits
4.26. In the Suitability Reports issued to 20 customers (which includes both members of
the BSPS and members of other Defined Benefit Pension Schemes), Mr Armin
stated that the customer’s Defined Benefit Pension Scheme “would offer much
better benefits” if the customer wished to retire before the normal retirement age
of the scheme, including two customers who did not, in fact, wish to retire early,
but nonetheless recommended that the customer should transfer.
4.27. In all 20 cases, Mr Armin failed to gather the necessary information about the early
retirement benefits available under the customer’s existing Defined Benefit Pension
Scheme. He also failed to carry out any analysis in relation to the early retirement
benefits for 17 of the 20 customers, such that he was unable to compare the early
retirement benefits or explain to customers why the Defined Benefit Pension
Scheme offered better early retirement benefits than an alternative pension
arrangement. The Suitability Reports issued by Mr Armin to his customers were
also confusing because he did not explain why, despite his view regarding early
retirement benefits under a Defined Benefit Pension Scheme, it was nonetheless
suitable for the customer to transfer, and as a result, his views on early retirement
and his recommendation that the customer transfers were mutually contradictory.
Inadequate assessment of the suitability of a Pension Transfer
4.28. Mr Armin was required to take reasonable steps to ensure that Personal
Recommendations he provided in relation to Pension Transfers were suitable for his
customers. He needed to assess all the necessary information and undertake
sufficient analysis. The Authority found significant failures by Mr Armin when
assessing suitability, details of which are set out in paragraphs 4.29 to 4.45 below.
As a result of these failures, Mr Armin failed to take reasonable steps to ensure his
Personal Recommendation in respect of Pension Transfers were suitable for his
customers.
The customer’s financial situation
4.29. Gathering adequate information regarding a customer’s financial situation and
income needs throughout retirement is necessary to assess whether a Pension
Transfer is suitable for a customer. A customer’s financial situation and income
needs throughout retirement are relevant to determining whether it is appropriate
for a customer to forego the guaranteed income they would receive in
circumstances where:
(a)
the customer will be reliant on the income from their Defined Benefit Pension
Scheme in retirement; and
(b)
the customer may not have the capacity to bear losses in the investment into
which their pension benefits are transferred.
4.30. Mr Armin knew that he needed to take a customer’s financial situation into account.
However, he expressly stated to customers in the Suitability Report that he had
given no consideration to their financial situation in his assessment of the suitability
of a Pension Transfer. He did not therefore assess, or give any consideration to,
whether a customer would be reliant on the income from their Defined Benefit
Pension Scheme or whether they could bear the risks involved in a Pension
Transfer. By not doing so, Mr Armin failed to consider whether, in light of their
financial situation, the customer might not be able to forego the guaranteed income
they would receive under their Defined Benefit Pension Scheme. This was despite
his knowledge that, after the transfer, the benefits a customer received would be
dependent on the performance of the recommended investment.
4.31. The Authority found that, for 23 of the 30 customers for whom files have been
reviewed, there were indications that the customers were reliant on their Defined
Benefit Pension Scheme to meet their income needs throughout retirement. Their
Defined Benefit Pension Scheme pension was their primary source of income in
retirement. These customers did not have significant assets or other sources of
income which could be used to supplement any shortfalls in their income needs.
Given their financial situation, it was especially important for these customers to
retain guaranteed income because they did not have the capacity to bear the risks
of transferring. Mr Armin’s advice to transfer out exposed his customers to a risk
of not being able to meet their income needs throughout retirement because their
income would be dependent on the performance of the recommended investment.
The customer’s objectives
4.32. All of the 30 files reviewed had the same, generic objectives, especially those that
were members of the BSPS:
(a)
25 customers wanted to transfer so that they could access their pension
benefits flexibly;
(b)
24 customers wished to maximise or improve the death benefits that would
be available to their beneficiaries (such as a spouse, partner and/or children);
(c)
22 customers wished to retire and access their pension benefits before they
reached the Defined Benefit Pension Scheme’s normal retirement age; and
(d)
16 customers wanted to access the pension commencement lump sum (either
before the customer intended to draw income from their pension or at the
same time).
4.33. Mr Armin failed adequately to explore whether his customer’s objectives and
intentions were realisable, having regard to their wider personal and financial
circumstances. For example, for 23 customers, Mr Armin did not explain the
obvious trade-off between ‘having more flexibility’ and receiving guaranteed
income in retirement on which they were wholly reliant.
4.34. Further, Mr Armin did not, prior to making a Personal Recommendation, undertake
sufficient analysis, such as cashflow modelling, to determine whether the
customer’s objectives were realistic or achievable. Mr Armin knew that, once a
request for a Pension Transfer was submitted, it would be difficult to withdraw that
request. Nonetheless, for the majority of customers where cashflow modelling was
undertaken, Mr Armin only did the cashflow modelling after a Personal
Recommendation had been provided. In fact, for 61 BSPS members, the cashflow
modelling was undertaken after the transfer had been completed, and in a further
six cases, at a point at which the Authority considers it was highly unlikely that the
customer would be able to stop the transfer.
4.35. Mr Armin’s failure to undertake cashflow modelling in a timely manner meant that,
in making a Personal Recommendation, he could not give any meaningful
consideration to, and deprived customers of crucial information about:
(a)
the impact which an objective to access the pension early or take a lump sum
might have on the sustainability of their pension fund throughout retirement;
and
(b)
whether their objectives were realistic and therefore reasonably achievable.
4.36. The result for a number of customers whom Mr Armin advised to transfer out was
that they were placed at significant risk of completely depleting their pension fund
at an early stage of retirement. For example, Mr Armin advised Mr B to transfer out
of the BSPS and into a personal pension with flexible drawdown facilities so that Mr
B could: (a) retire between the age of 55 and 57 with an income of £15,000 a year;
(b) access his pension benefits flexibly; (c) be debt free by 55; and (d) pass on
death benefits to his family. Cashflow modelling undertaken by Mr Armin after he
had provided a Personal Recommendation to Mr B showed that Mr B’s intention to
retire as early as 55 and take an income of £15,000 a year could result in his
pension fund being exhausted by the age of 71, or 67 if he decided to take the tax-
free lump sum when he retired. As a result, it appeared that:
(a)
it was not realistic for Mr B to retire early or take as much income as he had
indicated;
(b)
there was a strong possibility that he would not have been able to achieve his
death benefit objective; and
(c)
there was a strong indication that it was not suitable for Mr B to transfer out
of the BSPS given his objectives had a significant impact on the long-term
sustainability of his primary pension provision.
4.37. The Authority also found evidence of numerous other customers who had
unrealistic and unachievable objectives and who were at significant risk of
completely depleting their pension fund at an early stage of retirement. For six
customers, all bar one of whom were members of the BSPS and had limited liquid
assets, the cashflow modelling undertaken by Mr Armin showed that their pension
funds could be depleted before the age of 67 (i.e. their state pension age). For
three of these customers, this was as early as the age of 63, which meant that they
would potentially have had no source of income to meet their retirement needs for
a significant period of time before they started receiving their state pension.
Furthermore, three of the six customers wished to pass on death benefits to their
family which they would not have achieved by transferring out of the BSPS. The
Authority also found that, for 63 customers, the cashflow modelling showed that,
if they transferred out of their Defined Benefit Pension Schemes, there was a risk
that the customers’ pension funds would be depleted within 10 years of their state
pension commencing.
4.38. The matters referred to in paragraphs 4.33 to 4.37 demonstrate that Mr Armin
consistently failed to analyse whether his customers’ objectives were realistic and
achievable, what the impact might be on those objectives of transferring out of
their Defined Benefit Pension Scheme and whether the customer could bear the
risks involved in the transfer to achieve those objectives, before he advised the
customer to transfer. More significantly, by not undertaking such analysis before
making a recommendation, and in some cases before the transfer was processed,
Mr Armin exposed customers to a risk that they would have no choice but to
proceed with a transfer in circumstances where the cashflow modelling showed
that:
(a)
to transfer on the basis of their stated objectives would have a detrimental
impact the sustainability of their pension fund; and
(b)
a transfer in order to achieve a customer’s objectives was not in their best
interest.
Transfer analysis
4.39. Mr Armin was required to compare the benefits likely to be paid under a Defined
Benefit Pension Scheme with the benefits afforded by the personal pension scheme
before he advised a customer to transfer out of a Defined Benefit Pension Scheme.
Mr Armin had to ensure that the comparison included enough information for the
customer to be able to make an informed decision.
4.40. Typically, this comparison would be contained in a TVAS Report, and the TVAS
Report would set out, amongst other things, a comparison relating to specific
benefits (for example, death benefits) and a critical yield calculation. The critical
yield is guidance based on set assumptions (expressed as a percentage) on the
level of return the customer’s investment will need to achieve up to the point they
started drawing from the pension to match the benefits they would receive from
their Defined Benefit Pension Scheme.
4.41. The Authority found that Mr Armin did not consistently obtain a TVAS Report or
conduct a comparison (as described in paragraph 4.39 above) when advising on
Pension Transfers. A TVAS Report or comparison was not undertaken for 17 of the
30 customer files reviewed by the Authority. For two of these customers, a TVAS
Report was not obtained because Mr Armin did not have sufficient information
regarding the Defined Benefit Pension Scheme in respect of which the customer
was seeking advice. The Authority found no evidence to demonstrate that Mr Armin
had taken steps to obtain the necessary information from the relevant schemes
such that he could obtain a TVAS Report for these clients.
4.42. Even where Mr Armin had obtained a TVAS Report, there were various deficiencies
in the comparison. In 12 TVAS Reports reviewed by the Authority, the following
deficiencies were identified:
(a)
the comparison did not take all of the customer’s relevant circumstances into
account. For example, none of the TVAS Reports included basic information
regarding the customer, such as their marital status, whether they had any
dependents, their attitude to risk and information regarding their health; and
(b)
the comparison did not include enough information for the customer to make
an informed decision. In particular, for 10 of the 12 customers for whom a
TVAS Report was obtained, no comparison at the customer’s desired
retirement age was undertaken. These customers would not, therefore, have
been in possession of sufficient information about the level of investment
return they would need to achieve up to their desired retirement age so that
the benefits they received following the transfer were comparable with the
benefits available under the Defined Benefit Pension Scheme at the same age.
In the absence of this information, the customers would not have been in a
position to make an informed decision.
4.43. Mr Armin told customers he did not take into account the results of the TVAS in
making a recommendation because the TVAS involved the use of assumptions.
Therefore, irrespective of whether the information contained in the TVAS Report
supported Mr Armin’s recommendation or not, that information would not have
changed his recommendation.
4.44. However, given the purpose of the comparison in a TVAS Report (as explained in
paragraphs 4.39 and 4.40 above), it was important that Mr Armin took the contents
of a TVAS Report, such as the critical yield, into account when making a Personal
Recommendation. It was also important that Mr Armin explained to customers: (a)
what the results of all relevant critical yield calculations meant in terms of the
benefits the customer could receive following the transfer; (b) whether the
comparison supported his recommendation; and (c) if the comparison did not
support the recommendation, why he considered it was nonetheless suitable for
the client to transfer. However, he failed to do so. For example, in three Suitability
Reports reviewed by the Authority, Mr Armin simply stated that the critical yield
was not achievable based on the recommended fund and the period within which
the customer wanted to transfer, without any explanation of (a) what this meant
in respect of the potential income the customer was able to draw from their pension
following the transfer compared with the income available from their Defined
Benefit Pension Scheme, or (b) why it was suitable for the customer to transfer
even though the critical yield did not support a recommendation to transfer. As a
result, Mr Armin’s customers could not have been in a position to make an informed
decision on whether to transfer or not.
4.45. For example, the TVAS Report obtained by Mr Armin for Mr C stated that to replace
the benefits provided by the BSPS, Mr C would need an investment return of 11%
per annum if Mr C retired at the normal retirement age of the BSPS, or 24.4% per
annum if he retired at 60. This was based on a comparison between the benefits
under the BSPS and a low risk investment fund. Mr Armin told Mr C that, in his
opinion, the critical yield (as at the normal retirement age of the BSPS) was not
achievable based on the time horizon to retirement and the potential returns from
the recommended investment fund. However, Mr Armin did not explain that this
meant that the BSPS offered better benefits to Mr C than he would receive if he
transferred. Furthermore, the Suitability Report included no reference to the critical
yield at the client’s desired retirement age, despite Mr C’s top priority being the
ability to retire early.
Impact of Mr Armin’s failings
4.46. As a direct result of Mr Armin’s failure to gather the necessary information about
his customers (as detailed in paragraphs 4.21 to 4.27 above) and his failure to take
reasonable steps to ensure his advice in respect of Pension Transfers was suitable
for his customers (as detailed in paragraphs 4.28 to 4.45 above), all of the Pension
Transfer advice provided by Mr Armin to RPPS’s customers did not comply with the
relevant regulatory requirements. As a result, there was a significant risk of
customers advised by Mr Armin transferring out of their Defined Benefit Pension
Scheme when it was not suitable for them to do so.
4.47. In particular, the deficiencies in the information that Mr Armin gathered about his
customers (as detailed in paragraphs 4.21 to 4.27) meant that Mr Armin was not
in a position to assess whether a Pension Transfer was suitable for his customers,
or make a Personal Recommendation which complied with the relevant regulatory
requirements. In fact, he should not have advised customers to transfer where he
had not gathered the necessary information. This was exacerbated by Mr Armin
disregarding information about his customers (such as their personal financial
circumstances) in forming his recommendation.
4.48. Furthermore, as detailed in paragraphs 4.28 to 4.45 above, there were serious
shortcomings in Mr Armin’s assessment of the suitability of a customer transferring
out of their Defined Benefit Pension Scheme because he:
(a)
did not assess, having regard to a customer’s financial situation, whether a
customer was reliant on the income from their pension or could bear the risks
of transferring and foregoing the guaranteed income;
(b)
did not analyse whether a customer’s objectives were realistic and achievable
prior to making a Personal Recommendation, and in a number of cases prior
to the transfer; and
(c)
failed to consistently obtain TVAS Reports when advising customers, and
disregarded information contained in TVAS Reports where these were
obtained, such that his customers could not have been in a position to make
an informed decision on whether transferring was in their best interest.
4.49. This caused particular risk to members of the BSPS advised by Mr Armin, who
transferred a total of £74 million from the BSPS into personal pensions. From
September 2017 onwards, members of the BSPS had the option to transfer into a
new Defined Benefit Pension Scheme proposed by the sponsoring employers and
could thereby have retained the guaranteed benefits available under that scheme.
4.50. The Authority has undertaken analysis of the potential losses consumers suffer
where they transfer out of a Defined Benefit Pension Scheme when it is not suitable
for them to do so. Analysis undertaken by the Authority in 2017 calculated the
estimate average redress arising from unsuitable Pension Transfer advice to be
approximately £58,000. Further analysis undertaken by the Authority in 2019
calculated harm arising from unsuitable Pension Transfer advice to be £56,000.
Benefit derived by Mr Armin
4.51. RPPS operated a contingent charging model, whereby customers were only liable
to pay fees to RPPS if they proceeded with Mr Armin’s Personal Recommendation
to transfer out of their Defined Benefit Pension Scheme. Those fees for Pension
Transfers provided by Mr Armin and RPPS were based on a percentage of the CETV
of the pension the customer wished to transfer. For the majority of customers, the
fees payable to RPPS were deducted from their pension upon completion of the
Pension Transfer.
4.52. During the Relevant Period, RPPS generated £2.2 million in revenue from fees for
Pension Transfer business it carried on, 78% of which was generated in 2017. £1.19
million of the total revenue generated during the Relevant Period was attributable
to transfers by members of the BSPS, 96% of which was generated from BSPS
members that Mr Armin advised in 2017. RPPS and Mr Armin retained 55% of the
fees received all customers advised, with the remaining 45% being payable to the
introducer. RPPS and Mr Armin therefore retained approximately £1.2 million of the
revenue generated from the Pension Transfer business undertaken, which was used
to pay various benefits to Mr Armin, including salary, dividends, pension
contributions and other drawings.
5.
FAILINGS
5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.
5.2.
By reason of the facts and matters set out above, Mr Armin breached Statements
of Principle 2 and 7.
5.3.
Mr Armin breached Statement of Principle 2 during the Relevant Period, in that he
failed to act with due skill, care and diligence when advising customers on Pension
Transfers. His failings meant that the advice he provided did not comply with
regulatory requirements and standards, which created a significant risk that his
advice that a customer should transfer out of their Defined Benefit Pension Scheme
would not be suitable for them. In particular, Mr Armin:
(a)
failed to treat his customers fairly as he based his recommendation on the
flawed assumption that a transfer to meet a customer’s stated objectives was
in the customer’s best interests. In reality, many customers’ objectives were
either not realisable or financially viable, or could have been met by the
existing scheme;
(b)
did not take into account customers’ financial situation when assessing
whether it was suitable for them to transfer out of their Defined Benefit
Pension Scheme. As a result, he failed to assess, or give due consideration
to, whether customers would be reliant on the income from their Defined
Benefit Pension Scheme or whether they could financially bear the risks
involved in a Pension Transfer. He did this despite knowing that, following the
recommended transfer, customers’ retirement income would be dependent
on the performance of the new investment;
(c)
failed to undertake cashflow modelling analysis in a timely manner, and as a
result he could not give any meaningful consideration to, or provide crucial
information to customers about, how their objectives impacted on the
sustainability of their pension fund throughout retirement and whether their
objectives were realistic or achievable. In several cases, he only carried out
cashflow modelling after he had recommended the customer to transfer. For
61 customers, the cashflow modelling was undertaken only after the transfer
had been completed. In a further six cases, the cashflow modelling was not
undertaken until a point where the Authority considers it was highly unlikely
that the customer would be able to stop the transfer. Many of his customers
who transferred out of their Defined Benefit Pension Schemes were at risk of
depleting their pension fund at an early stage of retirement, and in some
cases before their state retirement age, without having any understanding or
knowledge of this risk and without being in a position to mitigate this risk
once it became known to them (for example by not transferring out of their
Defined Benefit Pension Scheme);
(d)
failed to conduct any research or obtain information about the alternative
options available to members of the BSPS to transferring out of the BSPS
following the RAA. Customers were therefore advised on the premise that
their only options were to remain in the BSPS or transfer into an alternative
pension arrangement. As a result, he failed to give any consideration to, or
advise customers on, whether it would be in their interest to transfer into the
new Defined Benefit Pension Scheme proposed by the sponsoring employers,
or to remain in the BSPS and enter the PPF;
(e)
failed to undertake any or any adequate transfer analysis (TVAS) to compare
the benefits likely to be paid under the Defined Benefit Pension Scheme with
benefits afforded by the personal pension or other pension scheme into which
it was proposed that the client should transfer. In 17 out of 30 cases reviewed,
he carried out no comparison between the schemes at all. In other cases, he
carried out a comparison but did not take all relevant circumstances into
account or did not include enough information for the customer to make an
informed decision. In any event, Mr Armin rendered futile any comparison he
may have carried out, by disregarding the conclusions of any such analysis in
arriving at his recommendation to the customer;
(f)
told customers who wished to retire early that their Defined Benefit Pension
Scheme offered better benefits if they wanted to retire early but nonetheless
advised them to transfer, without:
(i)
gathering any information or undertaking analysis such that he could
compare the early retirement benefits; or
(ii)
explaining why he considered it was suitable for a customer to transfer
despite his view regarding the early retirement benefits under the
Defined Benefit Pension Scheme; and
(g)
failed to ensure Suitability Reports he issued to customers contained
adequate information about the possible disadvantages of transferring out of
their Defined Benefit Pension Scheme (for example, that their pension might
run out early in their retirement), having regard to the customer’s specific
circumstances and objectives. Although Suitability Reports contained caveats
and risk warnings regarding Pension Transfers, the Authority considers that
the Personal Recommendation was unclear and risked being confusing for
customers. The warnings and Personal Recommendation to transfer were
often mutually contradictory, with no explanation. The Suitability Reports
were not, therefore, clear, fair and not misleading.
Statement of Principle 7
5.4.
Mr Armin also breached Statement of Principle 7 during the Relevant Period, in that
he failed to take reasonable steps to ensure that RPPS complied with Principles 6
and 9 and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R as a result of the
deficiencies in his advice process and Personal Recommendations he provided to
customers that it was suitable for them to transfer.
5.5.
As a consequence of his actions, Mr Armin failed to meet the regulatory standards
applicable to a Pension Transfer Specialist and in performing significant influence
controlled functions. The Authority therefore considers he is not fit and proper to
perform:
(a)
any senior management function in relation to any regulated activities carried
on by an authorised person, exempt person or exempt professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person, exempt
person and exempt professional firm.
6.
SANCTION
Financial penalty
6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5B sets out the details of the five-step framework that applies in
respect of financial penalties imposed on individuals in non-market abuse cases.
Step 1: disgorgement
6.2.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual
of the financial benefit derived directly from the breach where it is practicable to
quantify this.
6.3.
Mr Armin derived direct financial benefit from the advice fees generated from
customers who transferred out of their Defined Benefit Pension Scheme as a result
of his deficient Personal Recommendations in respect of Pension Transfers. Pension
Transfers represented 93% of RPPS’s business during the Relevant Period. The
amount received by Mr Armin during the Relevant Period was £953,133. In
addition, Mr Armin received £221,904 after the Relevant Period which was directly
attributable to Mr Armin’s misconduct. The Authority considers that 93% of the
total amount he received (less any quantifiable tax liabilities he incurred) stemmed
directly from his breaches. This is £816,784.
6.4.
The Authority has charged interest on Mr Armin’s benefits at 8% per year from
receipt to the date of this Notice, amounting to £381,945.38.
6.5.
Step 1 is therefore £1,198,729 (rounded down to the nearest £1).
Step 2: the seriousness of the breach
6.6.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects
the seriousness of the breach. That figure is based on a percentage of the
individual’s relevant income. The individual’s relevant income is the gross amount
of all benefits received by the individual from the employment in connection with
which the breach occurred, and for the period of the breach.
6.7.
The period of Mr Armin’s breaches of Statement of Principle 2 and 7 was from 8
June 2015 to 13 December 2017. The Authority considers Mr Armin’s relevant
income for this period to be £953,133.
6.8.
In deciding on the percentage of the relevant income that forms the basis of the
step 2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%. This range is divided into five fixed levels which
represent, on a sliding scale, the seriousness of the breach; the more serious the
breach, the higher the level. For penalties imposed on individuals in non-market
abuse cases there are the following five levels:
Level 1 – 0%
Level 2 – 10%
Level 3 – 20%
Level 4 – 30%
Level 5 – 40%
6.9.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the impact and nature of the breach, and whether it was committed
deliberately or recklessly. DEPP 6.5B.2G(12) lists factors likely to be considered
‘level 4 or 5 factors’. Of these, the Authority considers the following factors to be
relevant.
Impact of the breach
6.10. Mr Armin’s benefits stemming from his breaches were substantial. In particular,
RPPS’s revenue from Pension Transfer business significantly increased after it
started advising members of the BSPS. This increase in revenue benefited Mr Armin
because it enabled him to obtain substantially larger benefits from RPPS, which he
would not have been able to do had it not been for his breaches (DEPP
6.11. Mr Armin’s breach of Statement of Principle 2 also caused a risk of loss to a large
number of consumers who transferred out of the Defined Benefit Pension Scheme
as a result of Mr Armin’s advice (DEPP 6.5B.2G(8)(b).
6.12. Furthermore, as a direct result of Mr Armin’s failings, all of RPPS’s customers that
were advised to transfer out of their Defined Benefit Pension Scheme during the
Relevant Period, and in particular customers that were members of the BSPS, many
of whom were in a vulnerable position, were at significant risk of doing so when it
was not suitable for them to do so or in their best interest (DEPP 6.5B.2G(8)(d)).
Nature of the breach
6.13. Mr Armin’s failings occurred over a sustained period (over two years) and resulted
in a significant risk of loss for all the customers he advised in respect of Pension
Transfers during the Relevant Period (DEPP 6.5B.2G(9)(b)).
6.14. Mr Armin was also an experienced Pension Transfer Specialist, and throughout the
Relevant Period he failed to exercise adequate skill, care and diligence when
advising customers on Pension Transfers (DEPP 6.5B.2G(9)(j)). He was also solely
responsible for the matters that gave rise to the breaches (DEPP 6.5B.2G(9)(l)).
Whether the breach was deliberate and/or reckless
6.15. The breaches committed by Mr Armin were as a result of his serious lack of
competence, rather than deliberate or reckless acts (DEPP 6.5B.2G(11)).
Level of seriousness
6.16. DEPP 6.5B.2G(12) lists factors lists factors likely to be considered ‘level 4 or 5
factors’. The Authority considers that the fact that Mr Armin’s breaches caused a
significant risk of loss to customers is particularly relevant (DEPP 6.5B.2G(12)(a)).
6.17. DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that Mr Armin’s breaches of Statements of Principle 2 and 7
were committed negligently (DEPP 6.5B.2G(13)(d)).
6.18. Taking all of these factors into account, the Authority considers the seriousness of
the breach to be level 4 and so the Step 2 figure is 30% of £953,133.
6.19. Step 2 is therefore £285,939.90.
Step 3: mitigating and aggravating factors
6.20. Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.
6.21. The Authority has considered whether any of the mitigating or aggravating factors
listed in DEPP 6.5B.3G, or any other such factors, apply in this case and has
concluded that none applies to a material extent, such that the penalty ought to be
increased or decreased.
6.22. Step 3 is therefore £285,939.90.
Step 4: adjustment for deterrence
6.23. Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after Step
3 is insufficient to deter the individual who committed the breach, or others, from
committing further or similar breaches, then the Authority may increase the
penalty.
6.24. The Authority considers that the Step 3 figure of £285,939.90 represents a
sufficient deterrent to Mr Armin and others, and so has not increased the penalty
at Step 4.
6.25. Step 4 is therefore £285,939.90.
Step 5: settlement discount
6.26. Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty is
to be imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have been
payable will be reduced to reflect the stage at which the Authority and the individual
reached agreement. The settlement discount does not apply to the disgorgement
of any benefit calculated at Step 1. No settlement discount applies.
6.27. Step 5 is therefore £285,900 (rounded down to the nearest £100).
Conclusion as to financial penalty
6.28. Having applied the five-step framework set out in DEPP, the appropriate level of
financial penalty to be imposed on Mr Armin is £1,484,629.
6.29. The Authority would have imposed a financial penalty of £1,484,629 on Mr Armin.
However, the Authority recognises that there is a significant liability for redress for
RPPS’s customers which has fallen to the FSCS. As at 23 October 2023, the FSCS
has paid out £3,961,517.29 in compensation to customers of RPPS. Had it not been
for the compensation limit of £85,000, the total compensation available to
customers would have been £6,180,850.77. In these circumstances, the Authority
has agreed with Mr Armin that in lieu of the imposition of a financial penalty, the
sum of £200,000 be paid direct to the FSCS to contribute towards any redress due
to RPPS’s customers. This is in furtherance of the Authority’s consumer protection
objective. In light of the above and taking into account the exceptional
circumstances of the BSPS, the Authority hereby publishes a statement of
Mr Armin’s misconduct.
6.30. The Authority’s policy in relation to the imposition of a public censure is set out in
Chapter 6 of DEPP. DEPP sets out non exhaustive factors that may be of particular
relevance in determining whether it is appropriate to issue a public censure rather
than impose a financial penalty. DEPP 6.4.2G (5) includes that it may be a factor
(depending on the nature and seriousness of the breach) in favour of a public
censure rather a financial penalty including but not limited to where a person has
taken steps to ensure that those who have suffered loss due to the breach are fully
compensated for those losses. Whilst the full amount of any losses due to
Mr Armin’s breaches are not yet quantified, they may be significant. In light of this,
and the FSCS having already paid out £3,935,661.36 to RPPS’s customers, the
Authority has agreed that the sum of £200,000 should be paid direct to the FSCS
by Mr Armin.
6.31. The Authority has had regard to the fact that Mr Armin has agreed to pay direct to
the FSCS assets that would otherwise be used to satisfy any financial penalty
imposed by the Authority to be used towards any redress due to RPPS’s customers.
On that basis, the Authority has not imposed a financial penalty on Mr Armin but
instead hereby publishes on its website this Notice as a statement of Mr Armin’s
misconduct under section 66 of the Act.
6.32. The Authority gave Mr Armin a Decision Notice in relation to this matter on 20 May
2021, which Mr Armin referred to the Upper Tribunal. The £200,000 that Mr Armin
has agreed to pay represents substantially all of his remaining assets available to
meet a penalty or judgment. Had Mr Armin’s reference to the Tribunal continued,
most if not all of these assets would have been used to fund the litigation and as a
result would not have been available for redress notwithstanding the outcome of
the litigation.
6.33. The Authority has had regard to the guidance in Chapter 9 of EG in considering
whether to impose a prohibition order on him. The Authority has the power to
prohibit individuals under section 56 of the Act.
6.34. The Authority considers that it is appropriate and proportionate in all the
circumstances to prohibit Mr Armin from performing the following functions because
he is not a fit and proper person to perform such functions due to his lack of
competence and capability:
(a)
any senior management function in relation to any regulated activity carried
on by an authorised person, exempt person or exempt professional firm; and
(b)
any function in relation to the regulated activity of advising on Pension
Transfers and Pension Opt Outs carried on by an authorised person, exempt
person or exempt professional firm.
7.
PROCEDURAL MATTERS
7.1.
This Notice is given to Mr Armin under and in accordance with section 390 of the
Act.
7.2.
The following statutory rights are important.
Decision maker
7.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
7.4.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those provisions,
the Authority must publish such information about the matter to which this notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority may
not publish information if such publication would, in the opinion of the Authority,
be unfair to you or prejudicial to the interests of consumers or detrimental to the
stability of the UK financial system.
7.5.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Authority contacts
7.6.
For more information concerning this matter generally, contact Kingsley Moore
(direct line: 0207 066 0401 / email: Kingsley.Moore2@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
RELEVANT STATUORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the
operational objective of securing an appropriate degree of protection for consumers
(section 1C).
1.2.
Section 56 of the Act provides that the Authority may make an order prohibiting an
individual from performing a specified function, any function falling within a
specified description or any function, if it appears to the Authority that that
individual is not a fit and proper person to perform functions in relation to a
regulated activity carried on by an authorised person, exempt person or a person
to whom, as a result of Part 20, the general prohibition does not apply in relation
to that activity. Such an order may relate to a specified regulated activity, any
regulated activity falling within a specified description, or all regulated activities.
1.3.
Section 66 of the Act provides that the Authority may take action against a person
if it appears to the Authority that he is guilty of misconduct and the Authority is
satisfied that it is appropriate in all the circumstances to take action against him.
A person is guilty of misconduct if, while an approved person, he has failed to
comply with a statement of principle issued under section 64 of the Act, or has
been knowingly concerned in a contravention by a relevant authorised person of a
relevant requirement imposed on that authorised person.
2.
RELEVANT REGULATORY PROVISIONS
Principles for Businesses
2.1.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Handbook. They derive their
authority from the Authority’s rule making powers set out in the Act.
2.2.
During the Relevant Period, Principle 6 stated:
“A firm must pay due regard to the interests of its customers and treat them fairly.”
2.3.
During the Relevant Period, Principle 9 stated:
“A firm must take reasonable care to ensure the suitability of its advice and
discretionary decisions for any customer who is entitled to rely upon its judgment.”
Statements of Principle and Code of Practice for Approval Persons
2.4.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
(“APER”) have been issued under section 64 of the Act.
2.5.
During the Relevant Period, Statement of Principle 2 stated:
“An approved person must act with due skill, care and diligence in carrying out his
accountable function.”
2.6.
During the Relevant Period, Statement of Principle 7 stated:
“An approved person performing an accountable [significant-influence (in place
until 6 March 2016)] or [higher management (in place from 7 March 2016
onwards)] function must take reasonable steps to ensure that the business of the
firm for which they are responsible in their accountable function complies with the
relevant requirements and standards of the regulatory system.”
2.7.
‘Accountable higher management functions’ includes any accountable function that
is an Authority controlled function that is a significant influence function. Significant
influence functions include the following controlled functions: CF1 (Director), CF10
(Compliance Oversight) and CF11 (Money Laundering Reporting).
2.8.
The Code of Practice for Approved Persons sets out descriptions of conduct which,
in the opinion of the Authority, do not comply with a Statement of Principle. It also
sets out factors which, in the Authority’s opinion, are to be taken into account in
determining whether an approved person’s conduct complies with a Statement of
Principle.
Conduct of Business sourcebook
2.9.
The following rules and guidance in COBS (as were in place during the Relevant
Period) are relevant to the suitability of Pension Transfer advice given to customers.
2.10. COBS 2.1.1R states that a firm must act honestly, fairly and professionally in
accordance with the best interests of its client.
2.11. COBS 9.2.1R states that:
(1)
A firm must take reasonable steps to ensure that a personal recommendation,
or a decision to trade, is suitable for its client.
(2)
When making the personal recommendation or managing his investments,
the firm must obtain the necessary information regarding the client’s:
(a)
knowledge and experience in the investment field relevant to the
specific type of designated investment or service;
(b)
financial situation; and
(c)
investment objectives;
so as to enable the firm to make the recommendation, or take the decision,
which is suitable for him.
2.12. COBS 9.2.2R(1) states that a firm must obtain from the client such information as
is necessary for the firm to understand the essential facts about him and have a
reasonable basis for believing, giving due consideration to the nature and extent of
the service provided, that the specific transaction to be recommended, or entered
into in the course of managing:
(a)
meets his investment objectives;
(b)
is such that he is able financially to bear any related investment risks
consistent with his investment objectives; and
(c)
is such that he has the necessary experience and knowledge in order to
understand the risks involved in the transaction or in the management of his
portfolio.
2.13. COBS 9.2.2R(3) states that the information regarding the financial situation of a
client must include, where relevant, information on the source and extent of his
regular income, his assets, including liquid assets, investments and real property,
and his regular financial commitments.
2.14. COBS 9.2.6R states that, if a firm does not obtain the necessary information to
assess suitability, it must not make a personal recommendation to the client or
take a decision to trade for him.
2.15. COBS 19.1.2R states that a firm must:
(1)
compare the benefits likely (on reasonable assumptions) to be paid under a
defined benefit pension scheme or other pension scheme with safeguarded
benefits with the benefits afforded by a personal pension, stakeholder pension
scheme or other pension scheme with flexible benefits, before it advises a
retail client to transfer out of a defined benefit pension scheme or other
pension scheme with safeguarded benefits;
(2)
ensure that that comparison includes enough information for the client to be
able to make an information decision;
(3)
gives the client a copy of the comparison, drawing the client’s attention to the
factors that do and do not support the firm’s advice, in good time, and in any
case no later than when the key features document is provided; and
(4)
takes reasonable steps to ensure that the client understands the firm’s
comparison and its advice.
2.16. COBS 19.1.6G states that when advising a client who is, or is eligible to be, a
member of a Defined Benefit Pension Scheme or other scheme with safeguarded
benefits whether to transfer, convert or opt-out, a firm should start by assuming
that a transfer, conversion or opt-out will not be suitable. A firm should only
consider a transfer, conversion or opt out to be suitable if it can clearly
demonstrate, on contemporary evidence, that the transfer, conversion or opt-out
is in the client’s best interests.
2.17. COBS 19.1.7G states that when a firm advises a client on a pension transfer,
pension conversion or pension opt-out, it should consider the client’s attitude to
risk, including, where relevant, in relation to the rate of investment that would have
to be achieved to replicate the benefits being given up.
The Fit and Proper Test for Approved Persons
2.18. The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing
the fitness and propriety of a candidate for a controlled function. FIT is also relevant
in assessing the continuing fitness and propriety of an approved person.
2.19. FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability
and financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.20. The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the
Enforcement Guide (“EG”).
2.21. EG 9.1 states that the Authority may exercise this power where it considers that,
to achieve any of its regulatory objectives, it is appropriate either to prevent an
individual from performing any functions in relation to regulated activities or to
restrict the functions which he may perform.
DEPP
2.22. Chapter 6 of DEPP sets out the Authority’s statement of policy with respect to the
imposition and amount of financial penalties under the Act