High risk investments without advice: What went wrong at TailorMade

Collapsed advice firm TailorMade Independent recommended that clients transfer pension funds worth up to £400,000 into unregulated Sipp investments without advice.

Yesterday the FCA fined former TailorMade Independent director Robert Shaw £165,900 and banned him from holding senior financial services roles. The regulator found Shaw oversaw unsuitable Sipp sales and failed to disclose conflicts of interests to clients.

The FCA final notice reveals the extent of what went wrong at TailorMade. Some 1,661 clients invested £112.4m into Sipps, mostly from pension funds and including some final salary schemes.

Of those clients, 923 invested in overseas property developments operated by Harlequin. None of these customers received advice on whether the overseas property investments were suitable.

The Serious Fraud Office is investigating Harlequin, and says it is carrying out the final stages of its criminal investigation.

Other unregulated invested clients invested in include green oil, biofuels and farmland.

The final notice says amounts invested ranged from £5,000 to £440,000 each. TailorMade generated over £3m from its Sipp business between 2010 and 2013, with Shaw earning £329,221 over the same period.

Crucially, TailorMade gave advice on the most suitable Sipp wrapper for the underlying investments, but failed to give advice on the investments themselves.

The final notice states: “TailorMade’s customer documents did contain a statement that suggested customers obtain advice on the underlying products elsewhere.

“Shaw was unaware whether any customer did seek such advice (or from where they might receive this) and considered the wording within the documents to be a legal disclaimer against TailorMade’s responsibilities.”

Clients were typically charged £1,000 for each personal pension transferred. But final salary pension transfers were charged either £1,500 or 3 per cent of the total transfer value, whichever was higher.

Over 90 per cent of TailorMade clients also paid a further 1 per cent to 1.25 per cent for an annual review service.

Following an FSA warning on Sipp advice in January 2013, TailorMade suspended its Sipp advice business. The firm agreed with the regulator in March 2013 to stop carrying out any new pensions business.

Shaw then set up a £507,000 programme to look after existing customers, which included training on issues such as director competence and suitability, conflicts of interest, suitability of advice and financial promotions. He put in £55,229 of his own money to fund the plan.

TailorMade is now in liquidation and the Financial Services Compensation Scheme is investigating claims brought by TailorMade Independent clients.

Former TailorMade Independent directors Lloyd Pope and Peter Legerton were fined by the FCA in March, with Pope also fined £93,800.