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It’s a sorry state of affairs when Which?, as part of an investigation, visited 57 financial advisers in England and Wales (25 tied and 35 independent) and found the majority in breach of FSA rules.

Rules introduced by the FSA last year require financial advisers to give two “keyfacts” documents to the client. One outlines the cost of the advice and how it is to be paid for (commission or fee) and one outlines the services offered and also stipulates whether the firm is restricted on the products it offers.

Which? found 80% of advisers failed to explain the cost document, 35% failed to provide it and 30% also failed to provide the services document.

The study also found 37% of advisers failed to give adequate assessment to ascertain financial needs and risk attitude.

Only half the advisers visited for pensions advice properly assessed attitudes to investment risk, while 76 percent asked for protection advice failed to tell researchers of the risks associated with income protection should income fall. And four advisers (two tied from Abbey and two IFAs) recommended the wrong type of policy.

A Bradford & Bingley adviser selling protection insurance said they were free to choose the product provider, when in fact they are tied to Legal & General. An adviser at HSBC, again selling protection insurance, said the bank had an agreement with different insurance companies. But the company is only able to offer its own protection policy.

As the above illustrates, the worst offenders seem to be the tied advisers where nearly half led researchers to believe they had more products to offer than they actually had. A “tied” adviser is one attached to a building society or bank and is normally very restricted in the products they can offer.

My advice, for what its worth, is to try out a number of IFAs to see what each can offer (most provide a free half an hour consultation). Another piece of advice is to TRY and make time to assess your own financial situation and endeavour to work out your own financial strategy. It may involve a lengthy stretch at your PC sifting through various documents, but in the long run you could save thousands.

No one should need reminding, but if you advertise consumer credit for secured loans, whether it’s in a newspaper, on the radio or on the Internet, by law you have to have a consumer credit license.

In March this year amendments to the Consumer Credit Bill were given Royal Assent and changes in the revised Bill will affect organisations holding a Consumer Credit License.

From April 2007 the Financial Ombudsman service will cover consumer credit. To explain this, it is easier to quote from their website.

“The new legislation includes requirements on businesses with consumer credit licences (issued by the Office of Fair Trading) to have formal complaints-handling procedures. And for the first time, these businesses will also be covered on a statutory basis by the Financial Ombudsman Service.

Businesses with consumer credit licences who are also regulated by the Financial Services Authority (FSA) - such as banks and building societies - already come under the ombudsman for most of their consumer credit activities.”

In June 2006 the Ombudsman began a consultation period with the industry and related parties. This consultation period includes introducing the complaints-handling requirements to the consumer credit sector, explains the technicalities of the ombudsman’s remit over consumer credit disputes (officially known as the ombudsman’s “consumer credit jurisdiction”) and invites feedback on key issues - such as how the ombudsman service will be funded for this work; and includes the draft rules for handling consumer credit complaints. The consultation period runs to 11 October 2006 with publication of the final rules planned for January 2007.

From December 2006 until February 2007 the Ombudsman is holding a series of sessions across the country to let the industry know what it’s all about and how the new legislation will affect businesses.

One of the things you realise when involved in the financial sector is just how many organisations you have to keep an eye on!

In another development on the Payment Protection Insurance (PPI) front The Financial Services Authority (FSA) has today fined Regency Mortgage Corporation Limited (Regency) £56,000 for failures relating to its sale of mortgage related Payment Protection Insurance (PPI) in the sub prime market.

This is the first time the FSA has taken action against a firm for sales of PPI since the regulation of general insurance started in January 2005 and it’s interesting to note that the FSA has been building its ‘case’ against Regency since around August 2005. This is only 9 months or so after the FSA began regulating the general insurance market and it looks to me as though this could be the first of a number of such fines.

You can read the press release on the FSA website and there’s also a PDF available of the full final notice.

If you haven’t got time, these are the rules the FSA deemed to have been broken.

1. Failure to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
2. Failure to conduct its business with due skill, care and diligence; and
3. Failure to pay due regard to the interests of its customers and treat them fairly

And, in detail, these are specific reasons for the fine.

1. Regency’s information gathering processes failed to ensure that sufficient information about personal circumstances were obtained at the point of sale to ensure that MPPI recommendations met customers’ demands and needs.
2. Regency failed to identify weaknesses in or amend its systems and controls for the sale of MPPI prior to the highlighting of weaknesses at the FSA’s thematic visit of 23 August 2005.
3. Management information provided to Regency’s senior management was not sufficient to enable them to identify risks of regulatory concern arising from the sale of MPPI.
4. Inadequate compliance record keeping procedures resulted in the destruction of a significant number of demands and needs statements and questionnaires for MPPI sales completed between January and July 2005. As a result of this, Regency has confirmed that in a significant number of cases it is unable to demonstrate that its MPPI sales met the demands and needs of its customers or were suitable.
5. Regency did not have an adequate compliance function and its monitoring procedures failed to identify breaches of regulatory requirements.
6. In a number of the cases reviewed, customers were sold a policy on re-mortgaging heir homes, despite having cover already from a previous mortgage, or were sold a policy under parts of which they would not be able to claim, without consideration of whether the policy was still suitable for the customer and without the customer being made aware that parts of the policy did not apply to them.

It’s also interesting that the FSA saw the case as particularly bad because Regency’s breaches are viewed as being particularly serious

“because the Regency customer base consists primarily of sub-prime customers who traditionally have limited financial means and access to credit. The risks for these customers are therefore high if they are not eligible to claim on a recommended MPPI policy, or if the policy is not suitable for their demands and needs.”

Although, as we all know, the FSA does not regulate the secured loans market, it still regulates PPI insurance and it is only probably a matter of time before a similar case happens in the secured loans sector.