The Financial Services Authority, the UK regulator, has censured two UK-based independent financial advisors for promoting and selling unsuitable products and for failing to make the risks of investing in particular products clear to their customers.

The FSA fined Specialist Solutions £35,000 ($57,000) for “failing to assess adequately whether customers were eligible to receive promotions for unregulated collective investment schemes and failing to ensure that customers were given suitable advice to invest in them”, it said in a press release. The fine was reduced from £50,000 when the firm agreed to settle at an early stage of the investigation.

Another IFA, The Matrix Model Group (UK), was censured for not ensuring a product that was sold to clients was suitable, the regulator said. However, the FSA did not impose a fine after having initially proposed to do so. (To avoid misunderstanding, this firm is completely unconnected to a business called the Matrix Group Limited and its associated entities).

In the case of Specialist Solutions, the FSA said the firm recommended investing in UCIS to 101 customers during 2008 and 2009, pulling in over £11 million across three products.

After a review of UCIS promotion in 2010, the regulator said it told the firm to review its own promotion and sale of UCIS. The IFA “did not comply with legislation governing the promotion of UCIS and in nearly 50 per cent of the 20 files reviewed to date for suitability, the advice given to customers was found to be unsuitable”. 

In addition to the imposition of the fine, the FSA said Specialist Solutions must contact UCIS investors who were given unsuitable advice by the company and provide compensation to any who have lost money as a result.

In the Matrix Model Group case, the FSA said it “did not take reasonable care to ensure the suitability of its advice in recommending a geared traded endowment policy product”. The alleged indiscretion came to light during a FSA review of GTEPs in 2007.

Matrix “failed to match customers’ attitudes to risk to the product profile and did not communicate the risks involved with the GTEP product to customers”, said the FSA.

The firm has since contacted all of its GTEP customers in an attempt to identify those who may have received unsuitable advice.

The FSA initially proposed fining Matrix £45,000, but the IFA escaped with a rebuke after providing verifiable evidence that the fine would cause serious financial hardship.