1

Tristan Freer has referred this Decision Notice to the
Upper Tribunal where the parties will present their
respective cases. Any findings in this Decision Notice are
therefore provisional and reflect the Authority’s belief
as to what occurred and how it considers the behaviour
of Tristan Freer should be characterised. The Tribunal
will determine what (if any) is the appropriate action for
the FCA to take, and will remit the matter to the FCA
with
such
directions
as
the
Tribunal
considers

appropriate to give effect to its determination. The
Tribunal’s decision will be made public on its website.
No allegation of wrongdoing is made against Hennessy
Jones Limited, Mark Stephen, James King or City
Administration Limited in this Decision Notice.

DECISION NOTICE

To:
William Mark Tristan Freer (Tristan Freer)

and

(as an interested party pursuant to section 63(3) of the Act)

Date:
6 December 2018

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority has decided to:

(1)
impose on Tristan Freer a financial penalty of £52,725, pursuant to section

66 of the Act;

(2)
withdraw the approval given to Mr Freer to perform the controlled functions

of CF1 (Director), CF10 (Compliance Oversight), CF11 (Money Laundering

Reporting) and CF30 (Customer), pursuant to section 63 of the Act; and

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(3)
make an order, pursuant to section 56 of the Act, prohibiting Mr Freer from

performing any function in relation to any regulated activity carried on by

an authorised person, exempt person or exempt professional firm.

2.
SUMMARY OF REASONS

2.1.
The Authority has determined that, between 9 September 2014 and 12 December

2016 (the “Relevant Period”), Mr Freer breached Statement of Principle 1 (Integrity)

of the Authority’s Statements of Principle for Approved Persons by acting

dishonestly and recklessly when performing his controlled functions in relation to

Bank House Investment Management’s (“BHIM”) pension advice business.

2.2.
Pensions are a traditional and tax-efficient way of saving money for retirement. The

value of someone’s pension can have a significant impact on their quality of life

during retirement and, in some circumstances, may affect whether they can afford

to retire at all. Customers who engage authorised firms to provide them with advice

in relation to their pensions place significant trust in those providing the advice.

Where a firm fails to act with integrity and puts its interests above those of its

customers, it exposes its customers to a significant risk of harm.

2.3.
Further, where elements of a pension advice process are outsourced to a third party

service provider, the authorised firm remains responsible for the advice given and

all decisions and actions in relation to regulated activities provided in its name. It

is therefore essential that, in such circumstances, the authorised firm maintains

control of the advice process and provides effective oversight of the activities

carried out by the service provider on its behalf.

2.4.
During the Relevant Period Mr Freer was approved to perform the CF1 (Director),

CF10 (Compliance Oversight), CF11 (Money Laundering Reporting) and CF30

(Customer) controlled functions at BHIM, a small firm authorised by the Authority

with permission to conduct regulated activities, including advising on investments

(excluding Pension Transfers) and arranging (bringing about) deals in investments.

As a director of BHIM, Mr Freer had active management and day-to-day

responsibility for the business of the Firm. He was responsible for oversight of the

Firm’s compliance arrangements and was also an experienced and qualified

financial adviser.

2.5.
During the Relevant Period Mr Freer (together with Robert Ward, a director and the

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chief executive of BHIM) was responsible for BHIM adopting and using the Pension

Review and Advice Process. This process was based on a pension switching advice

model, the development of which was initiated and influenced by a third party, HJL.

The Pension Review and Advice Process:

(1)
involved HJL sourcing leads from lead generation companies and introducing

customers to BHIM;

(2)
involved HJL and CAL (a third party service provider which was closely

connected to HJL) being provided with BHIM’s logo and Mr Freer’s electronic

signature so that they could perform functions (the Outsourced Functions)

on BHIM’s behalf. HJL was responsible for performing the Outsourced

Functions prior to 13 October 2014, and from that date they were performed

by CAL. The Outsourced Functions included:

a)
contacting customers that had been introduced to BHIM by HJL;

b)
conducting fact-finds with these customers;

c)
inputting the results of those fact-finds into the Software (an

automated client management system designed to produce

Suitability Reports);

d)
sending the Suitability Reports to the customers; and

e)
calling the customers to ask whether they wished to proceed in

accordance with BHIM’s advice;

(3)
was structured to result in customers who met certain pre-set criteria

approved by Mr Freer being advised to switch their pensions to SIPPs

investing in high risk, illiquid assets not regulated by the Authority (the

Bonds). HJL had a material financial interest in a number of the Bonds,

which was not disclosed to customers; and

(4)
involved little meaningful oversight by BHIM of HJL’s activities as an

introducer or of HJL and CAL’s performance of the Outsourced Functions.

2.6.
Mr Freer was aware of what the Pension Review and Advice Process involved and

how it was structured. Nevertheless, he caused BHIM to hold itself out to customers

as providing bespoke, independent investment advice based on a comprehensive

and fair analysis of the whole market. Mr Freer knew this was misleading to

customers as it did not reflect the reality of the service that BHIM would provide

using the Pension Review and Advice Process. In causing BHIM to hold itself out in

this way, Mr Freer acted dishonestly. The Authority considers this to be particularly

serious because customers were not made aware of the true nature of the service

being provided, including the fact that HJL’s involvement in the process and

financial interest in a number of the Bonds created a conflict of interest. Customers

were therefore denied the opportunity to make an informed decision on whether to

use the Firm’s services and on whether to invest in the products recommended to

them by the Firm.

2.7.
Mr Freer’s actions in relation to BHIM’s adoption and use of the Pension Review and

Advice Process, summarised in paragraphs 2.8 to 2.15 below, were reckless. The

Pension Review and Advice Process put BHIM’s customers at serious risk of

receiving unsuitable advice and therefore at serious risk of investing in products

that were not suitable for them, but Mr Freer closed his mind to these risks and

unreasonably exposed BHIM’s customers to them by allowing BHIM to adopt and

use the Pension Review and Advice Process.

2.8.
Mr Freer failed to carry out adequate due diligence on the Bonds to ensure that he

had a proper understanding of them, including their risks and benefits, before

agreeing that they should be recommended to customers. He relied solely on

documents provided to BHIM by HJL, despite knowing that HJL had a material

financial interest in a number of the Bonds, and did not take any actions to address

the risk that the information provided by HJL could be misleading or incomplete.

2.9.
In any event, it should have been obvious to Mr Freer from the limited information

that he considered that the Bonds were high risk investments that were unlikely to

be suitable for BHIM’s customers, except in very limited circumstances. However,

Mr Freer failed to give due consideration to the risk that the Bonds were unsuitable.

2.10. Mr Freer knew of HJL’s involvement in the Pension Review and Advice Process, that

the process was structured to result in customers switching their pensions to SIPPs

investing in the Bonds, and that HJL had a material financial interest in a number

of the Bonds. Further, Mr Freer knew that two of the directors of HJL during the

Relevant Period (Mark Stephen and James King) were directors of each of the

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companies issuing the Bonds. There was therefore an obvious risk that HJL might

seek to influence inappropriately the advice provided to customers. However, Mr

Freer took no steps to ensure that the common directorships and how HJL was

remunerated were disclosed to customers.

2.11. As Mr Freer was an experienced and qualified financial adviser, it should have been

obvious to him that he needed to give due consideration to the documents to be

used in the Pension Review and Advice Process, and to how the process would

operate in practice, before deciding that BHIM should adopt the process. However,

he failed to do so and therefore failed to identify significant obvious deficiencies in

the Pension Review and Advice Process, including that: the fact-find contained

leading questions intended to steer customers towards the features of the products

that would be recommended; the Suitability Reports did not include sufficient

information to provide customers with a compliant personal recommendation; and

information provided to customers about the Bonds did not adequately inform them

of their costs, benefits and risks.

2.12. In any event, it should have been obvious to Mr Freer from the information available

to him that the Pension Review and Advice Process did not comply with the

Authority’s rules. Mr Freer was aware that BHIM would have no meaningful

involvement in the advice to be given and that the documents to be used in the

process would mislead customers about the service that would be provided.

However, Mr Freer failed to give any meaningful consideration to whether or not

the Pension Review and Advice Process was compliant.

2.13. Mr Freer failed to take reasonable steps to ensure that BHIM maintained control of

the Pension Review and Advice Process, and allowed important parts of the process,

such as the conduct of fact-finds, to be performed in a way that failed to obtain

and/or take into account relevant information about BHIM’s customers. Further,

he failed to take reasonable steps to ensure that BHIM reviewed in a meaningful

way advice given through the Pension Review and Advice Process, for which it was

responsible, whether before recommendations were sent to customers or at all.

2.14. Mr Freer failed to take reasonable steps to ensure that BHIM put in place

appropriate systems and controls and compliance arrangements to oversee and

monitor the Pension Review and Advice Process. As a result, BHIM did not have

adequate management information on HJL’s and CAL’s activities, and there were

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no independent compliance reviews of the advice given through the Pension Review

and Advice Process.

2.15. Mr Freer agreed (together with Mr Ward) that BHIM would work with HJL and CAL

without giving any proper consideration to whether they were suitable to perform

services on behalf of the Firm. Mr Freer carried out no due diligence on HJL other

than in connection with its role in relation to the companies issuing the Bonds, and

the Firm’s due diligence on CAL consisted simply of checking the company’s details

on the Companies House website and Mr Freer and Mr Ward visiting CAL’s office to

satisfy themselves that the company existed and was operating.

2.16. Mr Freer’s reckless actions in relation to BHIM’s adoption and use of the Pension

Review and Advice Process, in particular the fact that he allowed HJL and CAL to

perform the Outsourced Functions on BHIM’s behalf without adequate supervision,

failed to review in a meaningful way advice given through the Pension Review and

Advice Process, and failed to ensure BHIM put in place and operated appropriate

systems and controls in relation to the process, exposed BHIM to the risk of

breaching section 20 of the Act by carrying on a regulated activity without the

relevant permission, as in fact happened. The Pension Review and Advice Process

failed to distinguish properly between Pension Transfers (which include the transfer

of deferred benefits from an occupational pension scheme into a SIPP) and Pension

Switches (which involve the movement of funds from one personal pension scheme

to another where no safeguarded benefits are involved). As a result, despite BHIM

not having the necessary permission to provide advice on Pension Transfers, in at

least five cases advice about Pension Transfers was given to customers by BHIM in

breach of section 20 of the Act.

2.17. In addition to the clear deficiencies in the Pension Review and Advice Process, the

Authority has identified that unsuitable advice was provided to BHIM’s customers

in all 20 BHIM customer files it has reviewed. Further, each of the 20 customer files

failed to comply with applicable Handbook rules. As the same advice process was

used for all customers who were advised to invest in the Bonds, the Authority

considers it is likely that the advice provided to most, if not all, of BHIM’s customers

through the Pension Review and Advice Process was unsuitable.

2.18. During the Relevant Period, 265 customers switched or transferred pension funds

totalling approximately £8.5 million to SIPPs investing in high risk, illiquid assets

7

that were unlikely to be suitable for them, thereby exposing them to a significant

risk of loss.

2.19. Mr Freer caused BHIM to adopt the Pension Review and Advice Process in order to

generate fees for the Firm and to increase the number of customers that the Firm

could advise about other investments, and thereby generate further fees. In doing

so, Mr Freer put his and the Firm’s own interests before those of the Firm’s

customers.

2.20. Mr Freer also acted dishonestly or recklessly in several other ways during the

Relevant Period, as described in paragraphs 2.21 to 2.24 below.

2.21. Mr Freer recklessly allowed BHIM to breach a term of a requirement which, on its

application, had been imposed on it on 17 September 2015 (the Voluntary

Requirement). The Voluntary Requirement included a term requiring BHIM not to

carry on any activities in relation to Pension Switches and/or Pension Transfers to

any SIPP until independent verification was provided to the Authority confirming

that a robust and compliant advisory process was in place for pension switching

advice. However, in breach of this term, between 5 October 2015 and 10

November 2016, BHIM advised 77 customers to switch pension funds totalling

£2.9 million to SIPPs. Mr Freer, who was aware of the terms of the Voluntary

Requirement, was personally responsible for advising some of those customers and

he was aware that the rest were advised by other individuals at BHIM. Mr Freer

was aware of the risk that BHIM might breach the terms of the Voluntary

Requirement but, by closing his mind to that risk, recklessly failed to take

reasonable steps to ensure that these transactions were permitted. In particular,

he relied on assurances from Mr Ward that the relevant transactions were permitted

but took no other steps to confirm this.

2.22. Mr Freer provided the Authority with false and misleading information about BHIM’s

business arrangements with HJL and CAL. Mr Freer did so to try to prevent the

Authority from identifying misconduct by himself, Mr Ward and the Firm, and

thereby acted dishonestly.

2.23. Mr Freer dishonestly told the Authority that the Firm did not have minutes of board

meetings when, in fact, the Firm kept formal minutes of meetings which he (and

others) approved.

2.24. Mr Freer recklessly allowed the Firm to provide the Authority with a copy of the

Firm’s new business register which was materially incomplete. Mr Freer closed his

mind to the risk that the new business register might be incomplete or inaccurate

and failed to take reasonable steps to ensure the information provided to the

Authority was complete and accurate. Had Mr Freer done so, he would have

identified the obvious errors that were contained in the new business register.

2.25. The Authority considers Mr Freer’s failings to be serious because:

(1)
they related to a large number of customers (including some who were

vulnerable due to their age, their inability to replace capital, their medical

conditions or other personal circumstances);

(2)
it should have been obvious to Mr Freer that the involvement in the Pension

Review and Advice Process of HJL, which had a material financial interest in

a number of the Bonds into which customers’ funds were being invested,

created a clear conflict of interest, yet he took no steps to ensure that HJL’s

financial interest was disclosed to customers;

(3)
as an experienced and qualified financial adviser, it should have been

obvious to Mr Freer that the Bonds were unlikely to be suitable for retail

customers, except in very limited circumstances; and

(4)
on 4 July 2014, the Authority wrote to Mr Freer and drew his attention to

alerts released by the Authority relating to firms advising on Pension

Switches or Pension Transfers into unregulated products through SIPPs, the

risks of non-mainstream products being unsuitable and the need to protect

customers. Despite this Mr Freer did not take steps to protect the Firm’s

customers.

2.26. BHIM’s provision of pension advice was subject to examination by the Authority in

July 2015. The Authority had serious concerns about the suitability of BHIM’s

pension advice and, at the request of the Authority, BHIM applied to have

requirements imposed on it. Accordingly, the Voluntary Requirement was imposed

on BHIM by the Authority on 17 September 2015.

2.27. Following BHIM’s contravention of a term of the Voluntary Requirement, the

Authority exercised its own-initiative powers to impose further requirements on the

Firm including that, with effect from 12 December 2016, it was not permitted to

carry on any regulated activity.

2.28. The FSCS declared BHIM in default on 27 April 2017 and is investigating claims

made by BHIM’s customers. At as 25 June 2018, the FSCS had determined that

compensation in excess of £500,000 should be paid to BHIM’s customers.

2.29. The Authority considers that Mr Freer’s dishonest and reckless conduct during the

Relevant Period demonstrates that he lacks integrity and is not a fit and proper

person. Accordingly, the Authority has decided that it is appropriate to withdraw

his approval to perform controlled functions and to impose a prohibition order on

him, as described in paragraph 1.1(2) and (3) of this Notice. Further, the Authority

has decided to impose a financial penalty on Mr Freer in the amount of £52,725 for

his breach of Statement of Principle 1.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice.

the “Act” means the Financial Services and Markets Act 2000

the “Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct Authority

“BHIM” or the “Firm” means Bank House Investment Management Limited

the “Bonds” means bonds, each of 10 years, issued by four unquoted UK companies

incorporated between July and November 2014 into which BHIM’s customers’

pensions were invested

“CAL” means City Administration Limited, the third party service provider that

performed the Outsourced Functions on behalf of BHIM between 13 October 2014

“COBS” means the Conduct of Business Sourcebook, part of the Handbook

“DEPP” means the Authority’s Decision Procedure and Penalties Manual

“EG” means the Authority’s Enforcement Guide

“FOS” means the Financial Ombudsman Service

“FSCS” means the Financial Services Compensation Scheme

the “Handbook” means the Authority’s Handbook of rules and guidance

“HJL” means Hennessy Jones Limited, now known as Reditum Capital Limited. HJL

introduced customers to BHIM under the Pension Review and Advice Process and

also performed certain of the Outsourced Functions on behalf of BHIM prior to 13

“IFA” means independent financial adviser

“Mr Freer” means Tristan Freer

“Mr Ward” means Robert Ward

“Outsourced Functions” means the functions outsourced by BHIM, initially to HJL,

and from 13 October 2014, to CAL, under the Pension Review and Advice Process,

including the functions described in paragraph 2.5(2) of this Notice (but not

including the functions carried out by HJL in its role as introducer)

“Pension Review and Advice Process” means the process described in paragraph

2.5 of this Notice that BHIM adopted on 11 September 2014 and used until 27 July

“Pension Summary Report” means the report given to BHIM’s customers indicating

whether and by how much the customer could potentially benefit from a Pension

“Pension Switch” means the movement of funds from one personal pension scheme

to another where no safeguarded benefits are involved

“Pension Transfer” has the meaning given in the Handbook and includes the

movement of funds from an occupational pension scheme to a personal pension

scheme (in this case a SIPP)

“Relevant Period” means 9 September 2014 to 12 December 2016 inclusive

“SIPP” means self-invested personal pension

“SIPP Providers” means the firms providing the SIPP accounts under the Pension

Review and Advice Process

“Software” means the automated client management system that was used by CAL

during the Pension Review and Advice Process to manage customer information

and generate Suitability Reports for customers

“Suitability Report” means the report which a firm must provide to a client under

COBS 9.4 which, among other things, explains why the firm has concluded that a

recommended transaction is suitable for the client

“SYSC” means the Senior Management Arrangements, Systems and Controls

Sourcebook, part of the Handbook

the “Tribunal” means the Upper Tribunal (Tax and Chancery Chamber)

the “Voluntary Requirement” means the requirement imposed on BHIM on 17

“the Warning Notice” means the warning notice given to Mr Freer dated 5 March

4.
FACTS AND MATTERS

4.1.
Mr Freer is an experienced and qualified financial adviser who has been approved

by the Authority to perform the CF1 (Director), CF10 (Compliance Oversight) and

CF11 (Money Laundering Reporting) controlled functions at BHIM since 29 June

2006, and to perform the CF30 (Customer) controlled function at BHIM since 1

November 2007.

4.2.
BHIM is a small firm based in Cheltenham, Gloucestershire which, since 29 June

2006, has been authorised by the Authority with permission to conduct regulated

activities, including advising on investments (excluding Pension Transfers) and

arranging (bringing about) deals in investments.

4.3.
As a director of BHIM, Mr Freer had active management and day-to-day

responsibility for the business of the Firm together with Mr Ward. Mr Ward was

approved to perform the CF1 (Director) and CF3 (Chief Executive) controlled

functions on 16 October 2014 but assumed management responsibility for the

business during the summer of 2014. Mr Freer also had responsibility for

compliance matters at the Firm during the Relevant Period.

4.4.
Mr Freer was responsible (together with Mr Ward) for the Firm using, from around

11 September 2014 until 27 July 2015, the Pension Review and Advice Process,

which involved:

(1)
HJL sourcing leads from lead generation companies and introducing

customers to the Firm;

(2)
certain of the Outsourced Functions being performed on behalf of BHIM by

HJL prior to 13 October 2014;

(3)
the Outsourced Functions being performed on behalf of BHIM by CAL, a third

party service provider closely connected to HJL, from 13 October 2014; and

(4)
little meaningful oversight by BHIM of HJL’s activities as an introducer or of

HJL and CAL’s performance of the Outsourced Functions.

4.5.
The Pension Review and Advice Process was structured to result in customers who

met certain pre-set criteria approved by Mr Freer being advised to switch their

pensions to SIPPs investing in high risk, illiquid assets not regulated by the

Authority (the Bonds). Mr Freer was aware that HJL had a material financial

interest in a number of the Bonds, and that HJL’s financial interest was not

disclosed to customers.

The business proposition

4.6.
On 9 September 2014, Mr Ward sent Mr Freer an email about a meeting he had

had earlier that day with someone who Mr Freer subsequently learnt was a

representative of HJL. Mr Freer was told that:

(1)
HJL had ‘large numbers of people wanting to invest in [its] normal bond type

of funds’;

(2)
HJL was not authorised by the Authority and did not wish to become so

because it would have a conflict of interest;

(3)
HJL had a pension switching advice model which involved ‘a suite of

compliant documents’ and the outsourcing of functions in the pension advice

process to HJL’s staff ‘who see the clients and complete the paperwork’, and

which was intended to result in customers being advised to switch their

pensions to SIPPs investing in HJL’s ‘bond type of funds’; and

(4)
HJL was seeking an authorised IFA to put its name to the advice given to

customers through this process.

4.7.
Mr Ward’s email informed Mr Freer that HJL would ‘actually do everything including

the reports and suitability paperwork in [BHIM’s] name’ and that all BHIM needed

to do was provide compliance sign-off and allow HJL to use Mr Freer’s signature (as

a qualified financial adviser) to append to the documents used in the process.

Mr Ward suggested that Mr Freer would be paid ‘£10 per signature which is

electronic anyway’. Mr Freer was also told that he would be required to do regular

compliance visits to HJL to check the customer files.

4.8.
Mr Ward’s email also stated that the pension switching advice model had the

potential to generate ‘significant earnings’ because it was low paying but high

volume work. Mr Freer was told to expect 100 cases per month, moving quickly to

100 cases per week.

4.9.
Mr Ward also arranged for copies of documents which the HJL representative

provided at the meeting to be sent to Mr Freer, including fact sheets for a number

of the Bonds and specimen documents which HJL proposed to use in the Pension

Review and Advice Process.

Decision to work with HJL and adopt the Pension Review and Advice Process

4.10. Within 24 hours Mr Freer confirmed to Mr Ward that he was willing for the Firm to

adopt the Pension Review and Advice Process and approved the specimen

documents to be used in the process by HJL, on behalf of BHIM. Mr Ward confirmed

Mr Freer’s consent in an email to HJL.

4.11. Later on 10 September 2014, the Firm provided HJL with a copy of its company

logo and team biographies to enable the specimen documents to be finalised.

4.12. On 11 September 2014, two days after the initial meeting with the HJL

representative, Mr Freer allowed Mr Ward to provide HJL with an electronic copy of

his signature to use as the qualified signatory in the reports and paperwork to be

produced by HJL on behalf of the Firm.

4.13. At 11:40 on 12 September 2014, HJL provided Mr Freer (and Mr Ward) with a

number of the finalised documents to be used in the Pension Review and Advice

Process. Mr Freer approved the documents within four hours. He told HJL that he

was ‘happy with all of the documentation’ although he thought some of the wording

in the brochure for the Firm ‘could be better […] but this is not a compliance issue’.

In fact, the Firm’s brochure held out the Firm as providing customers with

independent advice from qualified financial advisers and stated that “Independent

advice means taking advice from an expert who is not tied to offering the products

of one particular pension provider and does not receive payments in the form of

commission for recommending that you move your pension. This means they can

act entirely in your best interests to advise a pension portfolio that best matches

your needs.” As Mr Freer was aware, these statements were highly misleading as

they did not reflect the reality of the service that the Firm would provide using the

Pension Review and Advice Process. Mr Freer told HJL that no amendments were

necessary because he understood that other IFAs were already using the same

documents and ‘if it aint broke don’t fix it!’.

4.14. Also on 12 September 2014, the HJL representative provided Mr Freer (and Mr

Ward) with a service agreement to sign. The services which were intended to be

performed by HJL on behalf of the Firm included:

(1)
sourcing leads from lead generation companies;

(2)
gathering information from customers’ current pension providers;

(3)
visiting and/or contacting customers to conduct the fact-find in the name of

the Firm; and

(4)
producing reports in the name of the Firm, including Suitability Reports.

4.15. The Firm did not sign this agreement, but HJL began contacting customers on behalf

of the Firm at the latest from 25 September 2014 and, throughout the period that

BHIM used the Pension Review and Advice Process, HJL was responsible for

sourcing leads and acting as an introducer for the Firm in connection with the

process.

Work with CAL

4.16. On 13 October 2014, with Mr Freer’s knowledge and agreement, the Firm entered

into an agreement with CAL, for CAL to provide substantively the same services as

those detailed in the unsigned agreement with HJL, with the exception of sourcing

leads and introducing customers to the Firm (which HJL continued to do).

4.17. CAL was closely connected to HJL. The two firms initially shared the same address.

HJL’s representative at the 9 September 2014 meeting with Mr Ward moved to CAL

but continued to email the Firm from an HJL email address until 13 November 2014

at the earliest.

4.18. CAL performed the Outsourced Functions on behalf of the Firm until 27 July 2015,

when the Firm ceased using the Pension Review and Advice Process and terminated

its business relationship with CAL as a result of intervention by the Authority. BHIM

also took over the employment of a number of staff previously employed by CAL.

The Bonds

4.19. The Pension Review and Advice Process resulted in customers’ pensions being

switched or transferred to SIPPs with a portfolio of underlying assets which took

the form of bonds, each of 10 years, issued by four unquoted UK companies

incorporated between July and November 2014 by HJL.

4.20. Customers’ SIPPs were invested in three portfolios which were misleadingly

described as being ‘cautious’, ‘moderate’ and ‘adventurous’, and which were made

up of differing proportions of the Bonds and, in some cases, a small percentage of

cash. The portfolios were meant to align to a customer’s attitude to risk, but in

practice there was little difference between the risks and returns of the ‘cautious’

portfolio when compared to the ‘adventurous’ portfolio. As such, the terms used to

describe the three portfolios failed to reflect the reality that a customer would be

exposed to high levels of risk whichever portfolio their SIPP was invested in.

4.21. Customers were told that the portfolios offered fixed returns and capital protection.

In fact, the Bonds within the portfolios are high risk, illiquid and unlikely to be

suitable for retail investors except in very limited circumstances due to:

(1)
the investment strategies of the issuing companies, which include investing

in distressed residential and commercial property and other speculative

investments, including unlisted equities; and

(2)
the limited regulatory oversight of the issuing companies, which are not

subject to the Authority’s rules governing, for instance, investment and

borrowing powers, disclosure of fees and charges, management of conflicts

of interest, a prudent spread of risk and other investor safeguards.

4.22. The information memorandums for the Bonds state that capital protection is meant

to be provided by way of floating charges on the assets of the issuing companies

and by way of a cash amount, to be held in a separate segregated account and

invested in cash instruments. For the Bonds issued by three of the four issuing

companies, the cash amount is limited to a maximum of 20% of the aggregate

principal amount of the Bonds plus accrued interest (no limit is specified for the

Bond issued by the fourth issuing company).

4.23. The Bonds are listed on an overseas exchange and the value of the Bonds is

dependent on whether there is a market for them. As such, customers may realise

less than their original investments if they sell them prior to the redemption date.

Repayment of the principal sum and interest is also dependent upon the four issuing

companies generating sufficient income and returns. Further, the Bonds are not

regulated by the Authority and are not covered by FOS or FSCS protection.

Failures in the Firm’s due diligence on the Bonds

4.24. A firm is required to take reasonable steps to ensure that the investments that are

recommended to its customers are suitable for those customers (COBS 9.2.1R). In

order to determine whether an investment is suitable for a customer, a firm needs

to undertake due diligence on the investment to understand how it works. This is

the process a firm carries out to assess, among other things, the nature of the

investment and its risks and benefits.

4.25. Mr Freer knew that the only products available for recommendation to BHIM’s

customers through the Pension Review and Advice Process were the Bonds. As a

financial adviser, director and compliance officer of the Firm, he had a responsibility

to take reasonable steps to ensure that the Firm undertook adequate due diligence

on the Bonds to ensure that they were suitable for the Firm’s customers. However,

Mr Freer failed to carry out adequate due diligence on them. For example:

(1)
Mr Freer relied solely on documents provided to BHIM by HJL. Despite the

fact that he knew that HJL had a material financial interest in the Bonds

(issued by three of the four issuing companies), Mr Freer did not take any

actions to address the risk that the information provided by HJL could be

misleading or incomplete.

(2)
Mr Freer failed to obtain information about the assets that the issuing

companies intended to invest in, which would be relevant to assessing the

risk of investing in the Bonds. For example, one of the Bonds was issued by

a company intending to invest in commercial property. Mr Freer took no

steps to find out in which types of commercial property investments would

be made, where the property would be based and what industries it would

support. It should have been obvious to Mr Freer, as an experienced and

qualified financial adviser, that this information was needed in order to

assess properly the suitability of the Bonds for customers.

4.26. Had Mr Freer carried out adequate due diligence on the Bonds, he could have

assessed on an informed basis whether the composition of the portfolios of Bonds

(which had been designed by HJL) was suitable for customers with particular risk

profiles (for example, whether the ‘cautious’ portfolio was suitable for customers

with a cautious attitude to risk). Mr Freer said his assessment was based on his

‘experience’ and was limited to reading through the fact sheets for each portfolio.

If he had carried out a proper assessment, he should have concluded that the

various portfolios of Bonds would not be suitable for the majority of retail customers

except in very limited circumstances.

4.27. Mr Freer also failed to assess properly the information of which he was aware. For

example, it was apparent from the information memorandums for the Bonds (which

Mr Freer claimed he reviewed) that:

(1)
the companies issuing the Bonds were all recently incorporated with no track

record, all operated from the same registered address and had two common

directors; and

(2)
the Bonds were unregulated and, at the time that the Firm began advising

customers to invest in them, unlisted (the fact the Bonds might not achieve

a listing was noted as a risk factor).

4.28. As an experienced and qualified financial adviser, it should have been obvious to

Mr Freer on the basis of this information that the Bonds were high risk investments

which were unlikely to be suitable for retail customers except in very limited

circumstances (for example, in some circumstances they may be suitable for high

net worth investors or sophisticated investors looking for some exposure to less

traditional investments). However, Mr Freer failed to give due consideration to the

risk that the Bonds were unsuitable.

The Pension Review and Advice Process

4.29. As Mr Freer was aware, the Pension Review and Advice Process was based on a

pension switching advice model that had previously been adopted by other IFAs.

HJL had initiated and influenced the development of this model, as it had been

seeking an efficient process, to be adopted by an authorised IFA, for advising

customers who met certain criteria to switch their pensions to SIPPs investing in

underlying assets in which HJL had a material financial interest. When BHIM

adopted the Pension Review and Advice Process in September 2014, the underlying

assets in which customers’ SIPPs were to be invested were the Bonds (issued by

three of the four issuing companies).

4.30. BHIM was responsible for the advice given to customers through the Pension

Review and Advice Process. However, a number of important functions were

outsourced to third parties. At the outset, it was intended that these functions

would be outsourced to HJL, and initially certain of the functions (in particular those

in the early stages of the process, such as obtaining information about the

customer’s existing pension arrangements) were performed by HJL. However, from

13 October 2014, these functions, with the exception of lead generation, were

performed by CAL. The decision that the Outsourced Functions should be performed

by CAL rather than HJL appears to have been agreed between them without the

involvement of, or any consultation with, BHIM.

4.31. The description of the Pension Review and Advice Process in the following

paragraphs describes the process that was in place from 13 October 2014.

4.32. Under the Pension Review and Advice Process, leads were sourced by HJL from a

number of lead generation companies. Customers were invited to request a free

pension review. If a customer made such a request, they would be contacted by

CAL, which would obtain information about the customer’s existing pension

arrangements. CAL would input the information into the Software, which would

generate a Pension Summary Report. The Pension Summary Report would give

the customer an indication of whether they might save costs if they changed their

pension arrangements. CAL would call or attend a face-to-face meeting with the

customer to present the Pension Summary Report and promote BHIM’s advice

service.

4.33. If the customer signed a service proposition confirming that they wished to receive

advice from BHIM, CAL would collect relevant documents from the customer and

conduct a scripted fact-finding exercise. CAL would input the results of the fact-

find into the Software, which would determine, based on pre-set criteria approved

by Mr Freer, whether the customer should be advised to invest in the Bonds and

produce a Suitability Report containing a personal recommendation. CAL would

send the Suitability Report to the customer and call the customer to ask them

whether they wished to proceed in accordance with the advice they had received.

Customers were not always told they were being contacted by a third party, so

some customers may have been under the impression that they were dealing with

staff from BHIM itself.

4.34. Mr Freer allowed CAL (and initially HJL) to perform the Outsourced Functions with

little or no oversight. Although the Suitability Reports were issued on behalf of BHIM

and in Mr Freer’s name as the qualified financial adviser, Mr Freer had no

involvement in the assessment of suitability for individual customers or in the

production of the Suitability Reports. Mr Freer’s electronic signature and the Firm’s

logo were simply added to documents provided by CAL to customers, including the

Suitability Reports. As such, Mr Freer did not have control over the advice given in

his name.

4.35. Between 3 November 2014 and 15 July 2015, BHIM advised 265 customers to

switch or transfer their pensions to a SIPP investing in the Bonds through the

Pension Review and Advice Process. This amounted to customer funds totalling

approximately £8.5 million.

4.36. BHIM received an advice fee of 3% of a customer’s pension assets when a Pension

Switch or Pension Transfer to the SIPP was completed. For any customer who

opted to have ongoing servicing, BHIM would also receive an annual fee of 0.5% of

the customer’s pension assets paid by the SIPP Provider from the customer’s

pension assets. Between 2 January 2015 and 16 June 2016, BHIM received

£350,425 in advice or ongoing servicing fees. BHIM paid over £163,240 to CAL for

its role in the Pension Review and Advice Process.

Failures relating to BHIM’s adoption and use of the Pension Review and

4.37. Mr Freer allowed BHIM to adopt the Pension Review and Advice Process despite

knowing that customers would be given misleading information about the service

they would receive. For example, Mr Freer reviewed and approved the service

proposition which customers had to sign to confirm they wished to receive advice

from BHIM and that they agreed with the terms of the service offered. The service

proposition stated, “…we offer an Independent advice service. We will recommend

investments based on a comprehensive and fair analysis of the market. We will

place no restrictions on the Investment Markets we will consider before providing

investment recommendations, unless you instruct us otherwise. We will however

only make a recommendation when we know it is suitable for you…We operate

independently and therefore provide investment services from the whole market”.

4.38. Mr Freer knew these statements were untrue. He knew that advice would be given

through an automated process without any meaningful assessment of individual

customers’ needs and that the only products that would be recommended to

customers through the Pension Review and Advice Process were the Bonds.

Further, Mr Freer was aware when he allowed BHIM to adopt the Pension Review

and Advice Process that the Outsourced Functions were intended to be performed

on BHIM’s behalf by HJL, which had a material financial interest in the Bonds issued

by three of the issuing companies, and he was later aware that, from 13 October

2014, they would be performed by CAL, which was closely connected to HJL.

4.39. Mr Freer reviewed and approved various documents to be used in the Pension

Review and Advice Process, including fact-find scripts and template Suitability

Reports. He also approved the pre-set criteria which would be the basis for the

Software’s determination of whether a customer should be advised to invest in the

Bonds. However, he spent very little time scrutinising the documents to be used in

the Pension Review and Advice Process before agreeing that BHIM should adopt the

process only two days after Mr Ward’s initial meeting with the HJL representative.

4.40. There were other significant obvious deficiencies in the Pension Review and Advice

Process which Mr Freer, as an experienced and qualified financial adviser, should

have identified had he given due consideration to the documents to be used in the

Pension Review and Advice Process, and to how the process would operate in

practice, including:

(1)
The fact-find script contained leading questions which were intended to steer

the customer towards the features of the Bonds that would be

recommended.

For example, customers were read a statement which included the following:

‘Pension money can be held in a range of different investments offering

different features. Some will experience highs and lows while others may

perform in a much less volatile manner.’ They were then asked if they would

prefer their pension fund to ‘Grow at a fixed and known rate each year?’ or

to ‘Go up and down in value depending on the underlying investments’

performance?’

Customers were also asked ‘If it could be guaranteed that the value of your

pension fund at the end of an agreed term could not fall below the amount

invested – would you want to incorporate this feature?’ and given the option

of answering ‘yes’ or ‘no’.

These questions were likely to lead customers to say they would prefer fixed

returns and a capital guarantee. Where customers stated either or both of

these preferences, they were advised to invest in the Bonds. The customers’

stated preferences for fixed returns and/or a capital guarantee were used to

justify recommending the Bonds, which customers were told offered fixed

returns and ‘an element of capital protection’ (see paragraph 4.21 above).

Customers were not asked any other questions about their investment

objectives.

(2)
The fact-find only allowed for certain specified information to be gathered

from the customer, which was insufficient to establish the suitability of

recommendations. The fact-find was conducted by CAL staff, working from

a script, who were not permitted to depart from the script and probe for

further information. Even when a customer did disclose additional relevant

information, it was not taken into account as a result of the way in which

the Suitability Reports were prepared. Further, a suitably qualified financial

adviser should oversee the fact-find process. However, neither Mr Freer nor

any other qualified financial adviser at BHIM supervised the conduct of fact-

finds, or routinely had any meaningful involvement in the individual

assessment of customers’ circumstances.

(3)
Customers were not given a compliant personal recommendation as the

Suitability Report did not explain why the Bonds were suitable for a

customer’s demands and needs. The Suitability Report also did not include

an analysis of the advantages and disadvantages of the recommended

products compared to the customer’s existing pension.

(4)
The information provided to customers about the Bonds did not fully inform

customers of their costs, benefits and risks. In particular:

a)
important information about the risks of the Bonds was either not

disclosed to the customer or, where it was disclosed, was

contradictory or unclear;

b)
the three portfolios that customers invested in were described as

‘cautious’, ‘moderate’, and ‘adventurous’. However, these terms

failed to reflect the reality that customers would be exposed to high

levels of risk whichever portfolio their SIPP was invested in;

c)
customers were told that the Bonds provided a fixed return and

capital protection. However, it was never explained or disclosed to

customers that there was a risk that they would not get all their

capital investment back. If the issuers of the Bonds performed poorly,

they might not be able to make interest payments to customers

and/or repay capital. It was particularly important that customers

were made aware of this risk given the bond issuers had no track

record and the bond issuers’ assets included both illiquid and high

risk assets; and

d)
whilst the advice provided would be covered by the FOS and the

FSCS, customers were not told that, if the Bonds failed, they would

be unable to make a complaint or claim to the FOS and/or the FSCS,

as the bond issuers and the Bonds were not regulated by the

Authority.

(5)
HJL’s involvement in the Pension Review and Advice Process created an

obvious conflict of interest because the process was structured to result in

customers being recommended to invest in the Bonds, in a number of which

HJL had a material financial interest. In addition, as Mr Freer knew, two of

the directors of HJL during the Relevant Period (Mark Stephen and James

King) were directors of each of the companies issuing the Bonds. However,

customers were not made aware of these common directorships or of how

HJL was remunerated. When questioned by the Authority, Mr Freer accepted

that HJL’s conflict of interest could have influenced the advice process and

created a risk of customers receiving unsuitable recommendations to invest

in the Bonds. Mr Freer also accepted that HJL’s financial interest should have

been disclosed to customers and was not.

4.41. Mr Freer also failed to identify obvious inaccuracies in the documents used in the

Pension Review and Advice Process. For example:

(1)
Mr Freer approved the specimen Suitability Report which stated that, should

customers wish to disinvest, it could take up to 12 months to access the

funds, despite the fact this statement related to an entirely different product

to those that the Firm agreed should be recommended to customers.

(2)
Mr Freer also approved fact sheets about the Bonds to be provided to

customers which stated that the Bonds were listed, when this was not yet

the case (the issuers of the Bonds had applied for them to be listed).

4.42. The Authority considers that the Pension Review and Advice Process was wholly

and, to an experienced and qualified financial adviser, obviously inadequate and

exposed customers to a significant risk of loss from investments that were unlikely

to be suitable for them. It should have been obvious to Mr Freer from the

information available to him, that the Pension Review and Advice Process was not

compliant with the Authority’s rules. However, as a result of his inadequate

consideration of the documents to be used in the Pension Review and Advice

Process, and of how the process would operate in practice (as well as his inadequate

due diligence on the Bonds and, as detailed below, HJL and CAL), Mr Freer (together

with Mr Ward) allowed BHIM to adopt and use a non-compliant process without

giving any meaningful consideration to the interests of customers.

4.43. Mr Freer told the Authority that the Pension Review and Advice Process was fit for

purpose largely on the basis that it was structured to result in only the Bonds being

recommended to customers wishing to invest in a fixed return product and that ‘If

ever at any point they said no to any of the particular questions then they [would]

be thrown out the side’. However, it should have been obvious to Mr Freer, as an

experienced and qualified financial adviser, that suitability cannot be assessed

simply by reference to whether a customer wishes to invest in a fixed return product

or not. In addition, the Authority considers the Bonds to be high risk investments

which would be unlikely to be suitable for retail investors except in very limited

circumstances (see paragraph 4.28 above) and that this should have been obvious

to Mr Freer.

Mr Freer’s limited role in the Pension Review and Advice Process

4.44. As the person at BHIM approved to perform the CF30 (Customer) controlled

function, Mr Freer was responsible for the advice given to all of BHIM’s customers

through the Pension Review and Advice Process and should have exercised control

of and supervision over the process. However, he, and therefore BHIM, had

negligible involvement in it. For example:

(1)
He had no involvement in conducting the fact-find with the customer and

had no oversight of that process.

(2)
He had no involvement in preparing the Suitability Report for the customer.

Mr Freer told the Authority that he reviewed each Suitability Report before

it was sent to the customer, but this claim is not supported by the evidence

provided to the Authority. To the extent he did review Suitability Reports,

on the account Mr Freer gave to the Authority, his review was limited to

checking that the details recorded in the fact-find had been correctly

included in the report. He did not give any meaningful consideration to

whether the personal recommendation was suitable for the customer. There

was also no mechanism for Mr Freer to confirm that he had reviewed and

approved a Suitability Report before it was sent to the customer.

(3)
He had no involvement in any further work done for customers once the

Suitability Report had been sent to them, including follow up calls or

meetings with the customer and completing the paperwork to process the

Pension Switch or Pension Transfer if the customer chose to invest in the

Bonds. As a result, he did not know which customers completed Pension

Switches or Pension Transfers.

(4)
He had no contact with customers during the Pension Review and Advice

Process unless specifically requested.

4.45. Mr Freer failed to ensure that the Firm put in place appropriate systems and controls

to address the obvious risks associated with the Pension Review and Advice

Process. For example, he failed to take reasonable steps to ensure that:

(1)
the Firm adequately monitored HJL’s lead generation activities. In fact, the

Firm did not monitor HJL at all and did not know if leads were obtained by

unlawful cold calling;

(2)
the Firm had access to information about activities conducted by HJL and

CAL on behalf of BHIM. For example, the Firm failed to ensure that its

agreement with CAL required CAL to provide it with management

information. While using the Pension Review and Advice Process, the Firm

had no access to management information about the work undertaken on

its behalf and, as a result, it had no idea of the number of leads generated,

the number of customers at each stage of the process or the number of

customers who did not switch or transfer to the Bonds and their reasons for

exiting the process; and

(3)
the Firm adequately monitored CAL. The only method the Firm used to

monitor CAL’s performance of the Outsourced Functions was through the

compliance file checks that Mr Freer conducted (see paragraph 4.46(2)

below), which were perfunctory and did not include listening to calls

conducted with customers.

4.46. Mr Freer should have realised that the Firm’s compliance arrangements for this

business were wholly inadequate.

(1)
Mr Freer was responsible for both the advice provided to customers through

the Pension Review and Advice Process and compliance checks on the same

files. There was a clear risk of errors going undetected and of customers

receiving unsuitable advice as a result. Mr Freer did not consider this risk

and did not take steps to mitigate it, for instance by engaging the services

of an independent compliance firm. Instead the Firm relied on the internal

compliance checks conducted by CAL, despite having no oversight of its

work.

(2)
To the extent that Mr Freer conducted compliance checks on customer files,

the process consisted of checking a sample of customer files for accuracy

and completeness rather than checking the suitability of the advice.

(3)
The Pension Review and Advice Process had been operating for over four

months before Mr Freer conducted his first compliance check. By then, 112

customers had already switched or transferred their pension to SIPPs with

the underlying investment in the Bonds.

Failures in BHIM’s due diligence on HJL and CAL

4.47. Principle 3 of the Authority’s Principles for Businesses provides that a firm must

take reasonable care to organise and control its affairs responsibly and effectively,

with adequate risk management systems. Further detailed guidance is set out in

SYSC. In particular, firms such as BHIM, which are not common platform firms (as

defined in the Handbook):

(1)
should take reasonable steps to identify risks relating to the firm’s activities,

processes and systems (SYSC 7.1.2R and SYSC 7.1.2AG);

(2)
when relying on a third party for the performance of operational functions

which are critical for the performance of regulated activities, should ensure

they take reasonable steps to avoid additional operational risk (SYSC 8.1.1R

and SYSC 8.1.1AG);

(3)
should exercise due skill, care and diligence when entering into, managing

or terminating any arrangement for the outsourcing to a service provider of

critical or important operational functions or of any relevant services and

activities (SYSC 8.1.7R and SYSC 8.1.11AG); and

(4)
should take the necessary steps to ensure that any service providers have

the ability, capacity and any authorisation required by law to perform the

outsourced functions, services or activities reliably and professionally (SYSC

8.1.8R(1) and SYSC 8.1.11AG).

4.48. Mr Freer agreed to HJL acting as introducer and to HJL and CAL performing the

Outsourced Functions on BHIM’s behalf without giving any proper consideration to

whether they were suitable to perform those activities.

4.49. Mr Freer agreed to BHIM working with HJL two days after Mr Ward’s initial meeting

with a representative of the company, having carried out no due diligence on HJL

other than in connection with its role in relation to the companies issuing the Bonds.

4.50. Mr Freer was aware that the Firm’s due diligence on CAL comprised checking the

company’s details on the Companies House website. He and Mr Ward also attended

meetings at CAL’s offices, but this was to satisfy themselves that the company

actually existed and was operating, rather than to assess whether it was fit to

perform the Outsourced Functions.

Motivation

4.51. In deciding that BHIM should adopt the Pension Review and Advice Process, Mr

Freer focused on the potential for the Firm to earn fees and the opportunity to

generate customer referrals for the Firm. He put the Firm’s interests before those

of its customers and, in doing so, put customers at a significant risk of harm.

4.52. Mr Freer was told by Mr Ward at the outset that ‘We actually do nothing but get

paid plus trail’ and that Mr Ward expected the Pension Review and Advice Process

to generate fees of £10,000 or more a week.

4.53. Mr Freer was also motivated by the expectation that customers who did not wish

to invest in the Bonds would be referred by HJL and/or CAL to the Firm for ‘bespoke’

advice. Mr Freer told the Authority that this did not happen in practice which meant

that the Firm was not getting its ‘part of the bargain’ that it had agreed with HJL

and CAL.

The Authority’s review of 20 customer files

4.54. Given that all of BHIM’s customers were told they were receiving a personal

recommendation based on a comprehensive and fair analysis of the whole market

when in fact they were not, and given HJL’s material financial interest in a number

of the Bonds which was undisclosed to customers, the process clearly put BHIM’s

customers at serious risk of receiving unsuitable advice and therefore at serious

risk of investing in products that were not suitable for them.

4.55. Nevertheless, the Authority has reviewed the advice given to 20 of BHIM’s

customers during the period from 2 December 2014 to 5 June 2015 using

recordings of calls and meetings, where they were available, and copies of the

customer files maintained by CAL.

4.56. The advice given to the customer was unsuitable in all 20 files. As the same process

was used for all advice relating to the Bonds, the Authority considers it likely that

the advice provided to most, if not all, of BHIM’s 265 customers was unsuitable.

4.57. In all 20 files the Authority considers that the gathering of information from the

customer, the product recommendation, the Suitability Report and the disclosure

of information about the product breached the Authority’s requirements, including

(1)
insufficient information was gathered from customers in order to ensure a

suitable recommendation was given to them. For example, the fact-finding

script was limited and key information was not requested from customers,

including about their investment objectives (other than with respect to fixed

returns and a capital guarantee) and their knowledge, experience,

understanding and ability to accept the risks of speculative investments

(COBS 2.1.1R, 9.2.1R and 9.2.6R);

(2)
the Bonds were not suitable due to the illiquid and high risk nature of the

investments made by the companies issuing the Bonds, and the limited

regulatory oversight of those companies (COBS 2.1.1R, 9.2.1R and 9.3.1G);

(3)
the Suitability Reports failed to give customers a compliant personal

recommendation as they did not explain why the SIPP and the Bonds were

suitable for a customer’s demands and needs and also did not adequately

explain the possible disadvantages of the recommendation to customers

(COBS 2.1.1R and 9.2.1R); and

(4)
fact sheets provided to customers about the Bonds did not adequately

explain the risks and possible disadvantages of investing in the Bonds and

did not disclose to customers that HJL would receive an initial fee of up to

5% of the funds raised from a number of the Bonds (COBS 2.1.1R and

9.2.1R).

4.58. In addition, the Authority identified:

(1)
two cases where investment advice had been given about a Pension Transfer

outside of BHIM’s permission;

(2)
one case where the recommendation was not suitable as the customer lost

existing benefits (a guaranteed interest rate) (COBS 2.1.1R and 9.2.1R(1));

(3)
five cases where the recommendation was unsuitable for the customer’s

personal
circumstances,
financial
circumstances
and/or
investment

objectives (COBS 2.1.1R and 9.2.1R(1)). For example, one customer

confirmed he was disabled and ‘retired’ on medical grounds and his only

source of income was disability welfare benefits. Despite this, he was

recommended to transfer all of his existing pension to the SIPP and to invest

in the ‘moderate’ portfolio of Bonds;

(4)
four cases where the recommendation was unsuitable as the SIPP was more

expensive than one or more of the customer’s existing pensions and there

was no justification for the additional cost (COBS 2.1.1R and 9.2.1R(1)). For

example, a customer was recommended to switch to a SIPP and invest in

the Bonds even though this would be £2,000 more expensive at the medium

return level than remaining in their existing pension scheme;

(5)
17 cases, where audio recordings of the advice process were available for

review by the Authority, where oral statements were made to the customer

during the advice process that were factually inaccurate, unclear, unfair or

misleading (COBS 4.2.1R). Those statements included that:

a)
after the fact-find an IFA would spend two days reviewing the

customer’s circumstances to make a recommendation, when in fact

the advice process was automated with typically no involvement from

a qualified financial adviser;

30

b)
an adviser would search the market for a recommendation tailored

to the customer’s circumstances, when in fact the Bonds were the

only products that were available for recommendation to the

customer;

c)
the customer’s capital would be guaranteed and the returns were

fixed, without explaining that income and/or capital might be lost if

the investments made by the issuing companies did not perform

adequately; and

d)
the advice was covered by the FSCS, without making it clear that any

losses incurred through the failure of the Bonds would not be covered

by the FSCS; and

(6)
18 cases where the information suggests customers waived their right to

cancel within 30 days (COBS 4.2.1R). There is no evidence that customers

were informed of the implications of waiving their rights and they may not

have been given sufficient time to reflect on the suitability of the investment.

Acting outside the Firm’s permission and breaches of the Voluntary

Requirement

Advising on Pension Transfers

4.59. The Firm was not authorised to advise on Pension Transfers. However, in allowing

HJL and CAL to perform the Outsourced Functions on BHIM’s behalf, failing to

review in a meaningful way advice given through the Pension Review and Advice

Process, and failing to ensure BHIM put in place and operated appropriate systems

and controls in relation to the Pension Review and Advice Process, Mr Freer exposed

the Firm to the risk of breaching section 20 of the Act by carrying on a regulated

activity without the relevant permission. This in fact happened when, between

24 November 2014 and 27 July 2015, the Firm gave advice in relation to five

Pension Transfers, and at least four customers transferred as a result.

4.60. On 9 February 2015, CAL emailed Mr Freer an internet link to a publication by the

Authority which made clear that pension funds moved from any type of occupational

pension scheme (including defined benefit schemes) to a SIPP fall within the

Handbook definition of a Pension Transfer. Mr Freer noted that he had not

understood this before and confirmed to CAL that the Firm did not have permission

to perform Pension Transfers. Mr Freer took steps to identify if advice had been

given to customers about Pension Transfers, but failed to identify that advice had

been given in his name on at least four Pension Transfers through the Pension

Review and Advice Process prior to 9 February 2015 (when he received the email)

and did not prevent the completion of two Pension Transfers after this date.

Breaches of the Voluntary Requirement

4.61. On 17 September 2015, at the request of the Authority, the Firm applied for the

imposition of requirements on it. Accordingly, the Voluntary Requirement was

imposed on the Firm. As a result, BHIM was required:

(1)
to terminate any and all business relationships with HJL and CAL and another

third party such that they could not perform any activities on behalf of the

Firm;

(2)
not to carry on any activities in relation to Pension Switches and/or Pension

Transfers to any SIPP, including completing any business then being

processed which had not been completed, until independent verification was

provided to the Authority confirming that a robust and compliant advisory

process was in place for pension switching advice. The person appointed to

provide independent advice had to be a person appointed with prior

agreement from the Authority; and

(3)
to implement a process of ongoing independent checks on all new pension

SIPP switching advice until such time as the Authority was satisfied the new

advisory process referred to above was embedded into the Firm's processes.

4.62. Mr Freer was aware of the terms of the Voluntary Requirement. Despite this,

between 5 October 2015 and 10 November 2016, Mr Freer and other advisers at

the Firm advised (with Mr Freer’s knowledge) a total of 77 customers to switch their

pensions to SIPPs.

4.63. Mr Freer thought that the account in which the majority of the 77 customers were

advised to invest was a type of personal pension not subject to the restrictions in

the Voluntary Requirement. Had he taken reasonable steps to check the type of

pension account, Mr Freer would have discovered that it was in fact a SIPP and that

it did fall within the terms of the Voluntary Requirement. Mr Freer also told the

Authority he relied on information from Mr Ward that the Firm had permission from

the Authority to advise customers to switch their pensions to certain SIPP accounts.

Despite knowing that this contradicted the written terms of the Voluntary

Requirement, Mr Freer took no other steps to confirm this, such as contacting the

Authority himself or asking to see written confirmation from the Authority.

4.64. Mr Freer thereby recklessly allowed the Firm to contravene the terms of the

Voluntary Requirement. In total approximately £2.9 million of customer funds was

switched to SIPPs despite the Voluntary Requirement.

4.65. When the Authority became aware of this, it used its own-initiative powers to

impose further requirements on the Firm such that, with effect from 12 December

2016, it was not permitted to carry on any regulated activity.

Misleading the Authority

4.66. Mr Freer repeatedly provided the Authority with information about the Firm’s

business which was false, incomplete or misleading. Mr Freer claimed that he had

not intended to mislead the Authority. However, he provided information which he

must have known at the time was not true. The Authority considers that Mr Freer

did so to try to prevent the Authority from identifying misconduct by himself, Mr

Ward and the Firm in relation to the Pension Review and Advice Process and the

Firm’s business arrangements with HJL and CAL.

4.67. Mr Freer provided various false and misleading accounts to the Authority about the

Firm’s business and its business arrangements with HJL and CAL. In particular:

(1)
Mr Freer repeatedly told the Authority he had no idea that HJL had any

involvement in the Pension Review and Advice Process despite approving

documents which clearly showed HJL’s involvement and receiving an

agreement for HJL to generate leads and perform the Outsourced Functions

on behalf of the Firm (see paragraphs 4.10 to 4.14 above).

(2)
Mr Freer also told the Authority that the Firm started working with CAL in

December 2014, that he quickly identified concerns with CAL and the

Pension Review and Advice Process, and that the Firm took steps to

terminate its agreement with CAL in February or March 2015 as a result.

This was not true because the Firm started working with CAL in October

2014 and continued to work with it until 27 July 2015 (see paragraphs 4.16

and 4.18 above) and Mr Freer must have known this because he continued

to communicate with CAL during this time.

4.68. The Authority considers that Mr Freer deliberately sought to mislead the Authority

on these points. Mr Ward emailed Mr Freer on 4 August 2014, following receipt of

a letter from the Authority explaining its concerns about the Pension Review and

Advice Process and the Firm’s relationships with HJL and CAL. Mr Ward wrote that

the Authority had, among other things, ‘restricted the whole thing to the work we

were doing with [CAL]’ and ‘said that we were being put into a process led by [HJL]’.

In his email Mr Ward suggested that he and Mr Freer could counter those concerns

by telling the Authority that the Firm had identified concerns with the Pension

Review and Advice Process ‘in the preceding feb and stopped the work process’ and

that it had ‘no connection legally or actually’ with HJL. These statements are not

supported by the contemporaneous documentary evidence with which the Authority

has been provided and which would have been available to Mr Freer at the time.

4.69. Mr Freer also told the Authority that the Firm did not have minutes of board

meetings when, in fact, the Firm kept formal minutes of meetings from 14 July

2014 at the latest. The minutes were approved by the board (which included Mr

Freer) at the beginning of the following board meeting. Mr Freer must have known

this. The minutes contained important information about BHIM’s arrangements

with CAL. When copies of the minutes were finally provided to the Authority they

included minutes of a meeting in February 2015 which stated that ‘work with [CAL]

has come to fruition and is to be continued’. None of the minutes provided to the

Authority contained any evidence that the Firm terminated its agreement with CAL

prior to July 2015.

4.70. Mr Freer allowed the Firm to provide the Authority with a copy of the Firm’s new

business register on 21 September 2016 which was materially incomplete. The

Firm’s new business register recorded a total of 30 transactions involving pensions

after the date of the Voluntary Requirement. It did not indicate that any of those

transactions involved customers switching to a SIPP account. However, the

Authority obtained information which showed that, in the period covered by the

new business register, the Firm had in fact advised customers on 76 transactions

involving Pension Switches to a SIPP account with a single SIPP Provider. The new

business register provided to the Authority recorded only 29% of those

transactions. Mr Freer failed to check the new business register before Mr Ward

provided it to the Authority. If he had checked it, it would have been obvious to

him that it was incomplete and omitted relevant material.

5.
FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in

Annex A.

5.2.
Statement of Principle 1 required Mr Freer to act with integrity in carrying out his

controlled functions. A person may lack integrity where he acts dishonestly or

recklessly.

5.3.
During the Relevant Period, Mr Freer breached this requirement in that:

(1)
He acted dishonestly by causing BHIM to hold out the Pension Review and

Advice Process to customers as the Firm providing bespoke, independent

investment advice based on a comprehensive and fair analysis of the whole

market. This was dishonest because Mr Freer knew that this was misleading

to customers as it did not reflect the reality of the service that BHIM would

provide using the Pension Review and Advice Process.

(2)
His actions in relation to BHIM’s adoption and use of the Pension Review and

Advice Process to provide advice to BHIM’s customers were reckless. The

Pension Review and Advice Process put BHIM’s customers at serious risk of

receiving unsuitable advice and therefore at serious risk of investing in

products that were not suitable for them (which in fact happened), but Mr

Freer closed his mind to these risks and unreasonably exposed BHIM’s

customers to them by allowing BHIM to adopt and use the Pension Review

and Advice Process. In particular:

a)
Mr Freer failed to carry out adequate due diligence on the Bonds

before agreeing that they should be recommended to customers. He

relied solely on documents provided to BHIM by HJL, despite knowing

that HJL had a material financial interest in a number of the Bonds,

and did not take any actions to address the risk that the information

provided by HJL could be misleading or incomplete. In any event, it

should have been obvious to Mr Freer from the limited information

that he considered that the Bonds were high risk investments that

were unlikely to be suitable for BHIM’s customers, except in very

limited circumstances. However, Mr Freer failed to give due

consideration to the risk that the Bonds were unsuitable.

b)
Mr Freer knew of HJL’s involvement in the Pension Review and Advice

Process and that the process was structured to result in customers

switching their pensions to SIPPs investing in assets in a number of

which HJL had a material financial interest. He also knew that two of

HJL’s directors were directors of each of the companies issuing the

Bonds. However, Mr Freer took no steps to ensure that the common

directorships and how HJL was remunerated were disclosed to

customers.

c)
Mr Freer failed to give due consideration to the documents to be used

in the Pension Review and Advice Process, and to how the process

would operate in practice, and therefore failed to identify significant

obvious deficiencies in the process. In any event, it should have been

obvious to Mr Freer from the information available to him that the

Pension Review and Advice Process did not comply with the

Authority’s rules. However, Mr Freer failed to give any meaningful

consideration to whether or not it was compliant.

d)
Mr Freer failed to take reasonable steps to ensure that BHIM

maintained control of the Pension Review and Advice Process and

allowed important parts of the process (for example, the conduct of

fact-finds) to be performed in a way that failed to obtain and/or take

into account relevant information about BHIM’s customers. Further,

he failed to take reasonable steps to ensure that BHIM reviewed in a

meaningful way the advice given through the Pension Review and

Advice Process, whether before recommendations were sent to

customers or at all.

e)
Mr Freer failed to take reasonable steps to ensure that BHIM put in

place and operated appropriate systems and controls and compliance

36

arrangements to oversee and monitor the Pension Review and Advice

f)
Mr Freer (together with Mr Ward) agreed that the Firm would work

with HJL and CAL without giving any proper consideration to whether

they were suitable to perform services on behalf of the Firm. Mr Freer

failed to carry out adequate due diligence on HJL and CAL before

agreeing that BHIM would work with them.

(3)
He recklessly allowed the Firm to breach a term of the Voluntary

Requirement by advising and permitting other financial advisers to advise

(with his knowledge) a total of 77 customers to switch their pension to a

SIPP after the Voluntary Requirement had been imposed. Mr Freer was

aware of the risk that BHIM might breach the terms of the Voluntary

Requirement but, by closing his mind to that risk, recklessly failed to take

reasonable steps to ensure that these transactions were permitted.

(4)
He told the Authority that:

a)
HJL had no involvement in the Pension Review and Advice Process,

when Mr Freer knew that it did, in particular by introducing customers

to the Firm; and

b)
the Firm started working with CAL in December 2014 and sought to

terminate its agreement with CAL in February 2015, when Mr Freer

knew that the Firm in fact started working with CAL in October 2014

and did not seek to terminate its agreement until July 2015.

The Authority considers that Mr Freer made these false and misleading

statements deliberately in order to try to prevent the Authority from

identifying misconduct by himself, Mr Ward and the Firm, and thereby acted

dishonestly.

(5)
He acted dishonestly by deliberately telling the Authority that the Firm did

not have minutes of board meetings when, in fact, the Firm kept formal

minutes of meetings which he (and others) had approved.

(6)
He recklessly allowed the Firm to provide the Authority with a copy of the

Firm’s new business register on 21 September 2016 which was materially

incomplete. Mr Freer closed his mind to the risk that the new business

register might be incomplete or inaccurate and failed to take reasonable

steps to ensure the information provided to the Authority was complete and

accurate. Had Mr Freer done so, he would have identified the obvious errors

that were contained in the new business register.

Lack of fitness and propriety

5.4.
The Authority has concluded, based on the matters set out above, that Mr Freer

lacks integrity and is not fit and proper.

6.
SANCTION

Financial penalty

6.1.
The Authority considers it is appropriate to impose a financial penalty on Mr Freer

under section 66 of the Act in respect of his breach of Statement of Principle 1.

6.2.
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

6.3.
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.

6.4.
Mr Freer directly financially benefitted from his misconduct because he received

£1,400 for compliance checking files of customers who received advice from BHIM

through the Pension Review and Advice Process.

6.5.
In accordance with DEPP 6.5B.1G, the Authority has charged interest on Mr Freer’s

benefit, at 8% per year from receipt, amounting to £425.

6.6.
Step 1 is therefore £1,825.

38

Step 2: the seriousness of the breach

6.7.
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.

6.8.
The period of Mr Freer’s breach of Statement of Principle 1 was from 9 September

2014 to 12 December 2016. The Authority considers Mr Freer’s relevant income

for this period to be £25,460. This figure comprises salary payments which Mr

Freer received from the Firm. The Authority has not included salary payments

which remain unpaid by the Firm.

6.9.
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%

6.10. 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.

Impact of the breach

6.11. Mr Freer agreed that the Firm should adopt and use the Pension Review and Advice

Process motivated by the prospect of making significant financial gain for doing

very little (DEPP 6.5B.2G(8)(a)).

6.12. Mr Freer’s breach of Statement of Principle 1 caused a significant risk of loss to a

large number of customers who switched or transferred their pensions to SIPPs

investing in the Bonds (DEPP 6.5B.2G(8)(c)).

6.13. A large number of customers were given advice by the Firm through the Pension

Review and Advice Process, including some who were vulnerable due to their age,

their inability to replace capital, medical conditions or other personal circumstances

(DEPP 6.5B.2G(8)(d)).

Nature of the breach

6.14. Mr Freer breached Statement of Principle 1 over an extended period of time (DEPP

6.5B.2G(9)(b)).

6.15. Mr Freer failed to act with integrity because he acted dishonestly and/or recklessly

throughout the Relevant Period (6.5B.2G(9)(e)).

6.16. Mr Freer, as the individual approved to perform the CF1 (Director) and CF10

(Compliance Oversight) controlled functions, held a senior position at the Firm

(DEPP 6.5B.2G(9)(k)).

Reckless misconduct

6.17. Mr Freer acted recklessly in respect of the Pension Review and Advice Process, as

described in paragraph 5.3(2) of this Notice (DEPP 6.5B.2G(11)(a)).

6.18. Mr Freer recklessly allowed the Firm to provide a copy of the Firm’s new business

register to the Authority without taking reasonable steps to ensure the information

was complete and not misleading (DEPP 6.5B.2G(11)(a)).

6.19. Mr Freer recklessly allowed the Firm to contravene the Voluntary Requirement when

he advised, and permitted other advisers to advise (with his knowledge), customers

to switch their pensions to a SIPP (DEPP 6.5B.2G(11)(a)).

Deliberate misconduct

6.20. Mr Freer knew that the Firm deliberately misled customers by holding out its

pension advice service to customers as offering bespoke, independent investment

advice based on a comprehensive and fair analysis of the whole market when, as

he knew, this did not reflect the reality of the service that BHIM would provide using

the Pension Review and Advice Process (DEPP 6.5B.2G(10)(c)).

6.21. Mr Freer deliberately provided false and misleading information to the Authority

about the Firm’s business arrangements with HJL and CAL in order to conceal his

and the Firm’s misconduct. Mr Freer also deliberately told the Authority that the

Firm did not have minutes of board meetings when, in fact, the Firm kept formal

minutes of meetings which he (and others) approved (DEPP 6.5B.2G(10)(d)).

Level of seriousness

6.22. 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:

(1)
Mr Freer’s breach of Statement of Principle 1 caused a significant risk of loss

to a large number of customers (DEPP 6.5B.2(12)(a));

(2)
Mr Freer failed to act with integrity (DEPP 6.5B.2(12)(d)); and

(3)
Mr Freer’s breach of Statement of Principle 1 was committed deliberately

and recklessly (DEPP 6.5B.2(12)(g)).

6.23. DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 and 3 factors’. The

Authority considers that none of these factors apply.

6.24. Taking all of these factors into account, the Authority considers the seriousness of

the breach to be level 5 and so the Step 2 figure is 40% of £25,460.

6.25. Step 2 is therefore £10,184.

Step 3: mitigating and aggravating factors

6.26. 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.

6.27. The Authority considers that the following factors aggravate the breach:

(1)
Mr Freer was previously involved in BHIM’s acting for customers who

invested their pensions in carbon credits (another high risk unregulated

investment). The Authority had concerns with this business and, on 16 June

2014, on the application by Mr Freer on behalf of the Firm, the Authority

imposed a restriction on the type of investments that BHIM could offer

customers. Mr Freer was therefore aware of the Authority’s concerns with

customers investing their pensions in high risk unregulated investments

(DEPP 6.5B.3G(2)(f));

(2)
on 18 January 2013 and 28 April 2014 the Authority issued alerts to firms

advising on Pension Transfers with a view to investing pension monies into

unregulated products through SIPPs (DEPP 6.5B.3G(2)(k)); and

(3)
in June 2014 the Authority specifically sent copies of the alerts referred to

above to Mr Freer and highlighted the Authority’s concerns. Despite this

correspondence with the Authority, about three months later Mr Freer

agreed for the Firm to adopt the Pension Review and Advice Process (DEPP

6.28. The Authority considers that there are no factors that mitigate the breach.

6.29. Having taken into account these aggravating factors, the Authority considers that

the Step 2 figure should be increased by 25%.

6.30. Step 3 is therefore £12,730.

Step 4: adjustment for deterrence

6.31. 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.

6.32. The Authority considers that the Step 3 figure of £12,730 does not represent a

sufficient deterrent, and so has increased the penalty at Step 4 by a multiple of 4.

6.33. Step 4 is therefore £50,920.

Step 5: settlement discount

6.34. 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.

6.35. No settlement discount applies.

6.36. The Step 5 figure is therefore £50,900 (rounded down to the nearest £100). The

total financial penalty (including the Step 1 disgorgement figure of £1,825) is

£52,725.

Serious financial hardship

6.37. Pursuant to DEPP 6.5D.1G, the Authority will consider whether it is appropriate to

reduce the amount of a financial penalty if an individual would suffer serious

financial hardship as a result of having to pay the full amount of the financial

penalty. The Authority accepts that the payment of a financial penalty of £52,725

would cause Mr Freer serious financial hardship.

6.38. DEPP 6.5D.2G(7) provides that there may be cases where, even though the

individual has satisfied the Authority that payment of the financial penalty would

cause him/her serious financial hardship, the Authority considers the breach to be

so serious that it is not appropriate to reduce the financial penalty. The Authority

will consider all the circumstances of the case in determining whether this course

of action is appropriate, including whether the individual acted dishonestly with a

view to personal gain.

6.39. The Authority considers that Mr Freer acted dishonestly with a view to personal

gain and his misconduct is considered to be at level 5 on the scale of seriousness.

Therefore, having regard to all the circumstances of the case, the Authority

considers Mr Freer’s breach to be so serious that it is not appropriate to reduce the

financial penalty.

6.40. The Authority therefore has decided to impose a total financial penalty of £52,725

on Mr Freer for breaching Statement of Principle 1.

Prohibition Order and Withdrawal of Approval

6.41. The Authority has had regard to the guidance in Chapter 9 of EG in considering

whether to withdraw Mr Freer’s approval to perform controlled functions and

whether to impose a prohibition order on him. The Authority has the power to

prohibit individuals under section 56 of the Act.

6.42. The Authority considers that Mr Freer is not a fit and proper person to perform any

function in relation to any regulated activity carried on by an authorised person,

exempt person or exempt professional firm. The Authority considers that it is

therefore appropriate and proportionate in all the circumstances to withdraw the

approval given to Mr Freer to perform the CF1 (Director), CF10 (Compliance

Oversight), CF11 (Money Laundering Reporting) and CF30 (Customer) controlled

functions at BHIM and to impose a prohibition order on him under section 56 of the

Act in those terms. This follows from the Authority’s findings that Mr Freer

breached Statement of Principle 1 by acting dishonestly and recklessly during the

Relevant Period and lacks integrity.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by Mr Freer,

and by HJL as a person given third party rights in respect of the Warning Notice

under section 393 of the Act, and how they have been dealt with. In making the

decision which gave rise to the obligation to give this Notice, the Authority has

taken into account all of the representations made by Mr Freer and HJL, whether

or not set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given under sections 57, 63 and 67 of the Act and in accordance with

section 388 of the Act.

Decision maker

8.2.
The decision which gave rise to the obligation to give this Notice was made by the

Regulatory Decisions Committee.

The Tribunal

8.3.
Mr Freer has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper

Tribunal) Rules 2008, Mr Freer has 28 days from the date on which this Notice is

given to him to refer the matter to the Tribunal. A reference to the Tribunal is

made by way of a signed reference notice (Form FTC3) filed with a copy of this

Notice. The Tribunal’s contact details are: Upper Tribunal, Tax and Chancery

9730; email: fs@hmcts.gsi.gov.uk).

8.4.
Further information on the Tribunal, including guidance and the relevant forms to

complete, can be found on the HM Courts and Tribunal Service website:

8.5.
A copy of Form FTC3 must also be sent to the Authority at the same time as filing

a reference with the Tribunal. A copy should be sent to Helen Tibbetts at the

Financial Conduct Authority, 12 Endeavour Square, London E20 1JN.

8.6.
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a final notice about the implementation of that decision.

Access to evidence

8.7.
Section 394 of the Act applies to this Notice.

8.8.
The person to whom this Notice is given has the right to access:

(1)
the material upon which the Authority has relied in deciding to give this

Notice; and

(2)
the secondary material which, in the opinion of the Authority, might

undermine that decision.

Third party rights and interested party rights

8.9.
A copy of this Notice is being given to each of HJL, CAL, Mark Stephen and James

King as third parties identified in the reasons above and to whom in the opinion of

the Authority the matter is prejudicial. Each of those parties has similar rights to

those mentioned in paragraphs 8.3 and 8.8 above, in relation to the matters which

identify him/it.

8.10. This Notice is also being given to BHIM as an interested party in the withdrawal of

Mr Freer’s approval, pursuant to section 63(4) of the Act. BHIM has the right to:

(1)
access evidence pursuant to section 394 of the Act, as described above; and

(2)
refer to the Tribunal any decision to withdraw Mr Freer’s approval, pursuant

to section 63(5) of the Act.

Confidentiality and publicity

8.11. This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

copied may not publish the Notice or any details concerning it unless the Authority

has published the Notice or those details.

8.12. However, the Authority must publish such information about the matter to which a

decision notice or final notice relates as it considers appropriate. The persons to

whom this Notice is given or copied should therefore be aware that the facts and

matters contained in this Notice may be made public.

Authority contacts

8.13. For more information concerning this matter generally, contact Helen Tibbetts

(direct line: 020 7066 0656) at the Authority.

Tim Parkes
Chair, Regulatory Decisions Committee



ANNEX A

1.
RELEVANT STATUTORY PROVISIONS

1.1.
The Authority’s objectives are set out in Part 1A of the Act, and include the

operational objective of securing an appropriate degree of protection for consumers

(section 1C).

1.2.
Section 56(1) of the Act provides that the Authority may make a prohibition order

if it appears to it that an individual is not a fit and proper person to perform

functions in relation to a regulated activity carried on by (a) an authorised person,

(b) a person who is an exempt person in relation to that activity, or (c) a person to

whom, as a result of Part 20, the general prohibition does not apply in relation to

that activity.

1.3.
Section 56(2) of the Act provides that a ‘prohibition order’ is an order prohibiting

the individual from performing a specified function, any function falling within a

specified description or any function. Section 56(3)(a) provides that a prohibition

order may relate to a specified regulated activity, any regulated activity falling

within a specified description or all regulated activities.

1.4.
Section 63 of the Act provides that the Authority may withdraw an approval given

under section 59 if it considers that the person in respect of whom it was given is

not a fit and proper person to perform the function to which the approval relates.

1.5.
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, whilst an approved person, he has failed to

comply with a statement of principle issued under section 64 or section 64A of the

Act.

2.
RELEVANT REGULATORY PROVISIONS

Statements of Principle and Code of Practice for Approved Persons

2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons

have been issued under section 64 of the Act.

2.2.
During the Relevant Period, Statement of Principle 1 stated:

‘An approved person must act with integrity in carrying out his accountable

functions.’

2.3.
‘Accountable functions’ include controlled functions and any other functions

performed by an approved person in relation to the carrying on of a regulated

activity by the authorised person to which the approval relates.

2.4.
The Code of Practice for Approved Persons sets out descriptions of conduct which,

in the opinion of the Authority, does 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

2.5.
EG sets out the Authority’s approach to exercising its main enforcement powers

under the Act.

2.6.
Chapter 7 of EG sets out the Authority’s approach to exercising its power to impose

financial penalties and other disciplinary sanctions.

Decision Procedure and Penalties Manual

2.7.
The Authority’s policy for imposing penalties is set out in Chapter 6 of DEPP.

Conduct of Business Sourcebook

2.8.
The Authority’s rules and guidance for Conduct of Business are set out in COBS.

The rules and guidance in COBS relevant to this Notice are 2.1.1R, 4.2.1R, 9.2.1R,

9.2.6R, 9.3.1G and the rules in 9.4.

Senior Management Arrangements, Systems and Controls Sourcebook

2.9.
The Authority’s rules and guidance for senior management arrangements, systems

and controls are set out in SYSC. The rules and guidance in SYSC relevant to this

Notice are 7.1.2R, 7.1.2AG, 8.1.1R, 8.1.1AG, 8.1.7R, 8.1.8R(1) and 8.1.11AG.

ANNEX B

REPRESENTATIONS

Representations received from Mr Freer

1.
Mr Freer’s representations (in italics), and the Authority’s conclusions in respect of

them, are set out below:

The Authority’s investigation was inadequate

2.
The Authority’s investigation into Mr Freer was inadequate and biased. The Authority

has not interviewed or obtained statements from any individual at CAL. Further, the

Authority decided the case before it was put to Mr Freer.

3.
The Authority is satisfied that a thorough investigation was carried out. The Authority’s

investigation was into the conduct of BHIM, Mr Freer and Mr Ward. It has therefore

focussed predominately on the accounts and documents provided by those parties. In

addition, the Authority obtained material from other parties where it reasonably

considered that the material would be relevant to the purpose of its investigation.

4.
The Authority has determined this matter in accordance with its usual procedures set

out in DEPP. In particular, the decision to give the Notice was taken by members of

the Regulatory Decisions Committee (the “RDC”), a committee of the Authority which

is independent of the case team in the Authority’s Enforcement and Market Oversight

Division that carried out the investigation, and none of these RDC members was

directly involved in establishing the evidence on which the decision was based. Prior

to the RDC reaching the decision that gave rise to the obligation to give this Notice,

Mr Freer was given the opportunity to make both written and oral representations to

the RDC, which he did. The Authority is therefore satisfied that the decision to give

this Notice was not made until after Mr Freer commented on the Authority’s proposed

action.

HJL was not involved in the Pension Review and Advice Process

5.
BHIM did not have a business relationship with HJL. When the HJL representative met

Mr Ward for the first time on 9 September 2014, he did so as a representative from

CAL, not HJL. Mr Ward did not notice that the HJL representative used an HJL email

address.

6.
HJL did not provide BHIM with leads. Leads were provided by CAL, although Mr Freer

did not know who at CAL provided the leads. BHIM only had a services agreement

with CAL, they did not have a signed agreement with HJL.

7.
Mr Freer’s representation that BHIM did not have a business relationship with HJL is

not consistent with the documentary evidence.

8.
Mr Ward’s email to Mr Freer on 9 September 2014, summarising his meeting with the

HJL representative, can only be understood if Mr Ward believed the individual he was

meeting attended on behalf of HJL. For example, Mr Ward refers to the individual:

a. having various “bond type of funds” and that there were a substantial

number of people who wanted to invest in “his” funds – only HJL had bonds

to offer, not CAL; and

b. being potentially conflicted – HJL, which had a material financial interest,

would have had a direct conflict if it was advising customers to invest in the

Bonds.

9.
Following the meeting on 9 September 2014, the HJL representative emailed Mr Ward

and Mr Freer a service agreement between BHIM and HJL. The email was sent from

an HJL email address, and the Authority considers this would have alerted Mr Freer to

the fact that the individual was corresponding on behalf of HJL.

10. Even if Mr Freer did not notice the HJL email address, he must have been aware that

HJL had been involved in the development of the pension switching advice model that

BHIM adopted. The description of the pension switching advice model in Mr Ward’s

email of 9 September 2014 strongly suggests that it was influenced by HJL. According

to the email, the HJL representative said that he had a suite of compliant documents

and that “they” (referring to HJL) would do everything including the production of

reports and suitability paperwork in BHIM’s name.

11. In relation to lead generation, it is clear from the contemporaneous evidence that Mr

Freer was aware that HJL was introducing customers to BHIM. In particular:

a. the unsigned service agreement between HJL and BHIM shows that HJL

would be generating leads. The agreement subsequently entered into with

CAL contains broadly the same services, but with the exception of lead

generation. It therefore appears that HJL continued to generate leads, even

after CAL started performing the Outsourced Functions;

b. a number of the documents in BHIM’s client files describe HJL as the

introducer;

c. internal emails between Mr Freer and BHIM staff demonstrate that Mr Freer

was aware that HJL was introducing customers to BHIM; and

d. Mr King emailed Mr Freer from an HJL email address attaching an “up to

date list of all the marketing companies we [HJL] are working with from a

lead generation front”. Mr King stated his understanding that BHIM had

received calls from customers asking whether the lead generation

companies “are legitimately working on [BHIM’s] behalf”. This demonstrates

that HJL was using lead generation companies to generate leads for BHIM.

The length of CAL’s involvement in the Pension Review and Advice Process

12. The Pension Review and Advice Process began in December 2014 and was terminated

by BHIM in March 2015, although BHIM had to allow CAL to work through the 3

months’ notice period in the service agreement.

13. Mr Freer’s assertion that the Pension Review and Advice Process began in December

2014 is not supported by the contemporaneous evidence, which suggests that CAL

began performing the Outsourced Functions from at least the middle of October 2014

onwards. For example, the service agreement between BHIM and CAL is dated 13

October 2014, and on 27 October 2014, CAL explained in an email to Mr Freer that

there were already seven cases for BHIM.

14. Mr Freer has not provided the Authority with any evidence to support his claim that

BHIM terminated its agreement with CAL in March 2015. The Authority has not

identified any reference to such notice being provided in correspondence or in any of

BHIM’s board minutes.

15. Neither Mr Freer nor Mr Ward have been able to provide a clear explanation of the

effect of terminating the agreement between BHIM and CAL. It appears from the

documentary evidence that CAL continued to perform the Outsourced Functions until

the Authority intervened to stop all of BHIM’s SIPP business in late July 2015.

Due diligence on the Bonds

16. BHIM did not just rely on information from HJL when conducting due diligence on the

Bonds. BHIM was provided with advice from a significant London law firm. This law

firm informed BHIM that the Bonds were not illiquid. There was no risk that the Bonds

would not be listed, as the SIPP Provider would not be able to buy the Bonds until they

were listed. In any event, Mr Freer believed that, at the time the Bonds were

recommended to customers, there was a market-maker in place for them.

17. There was a significant difference between the various portfolios and Mr Ward was

involved in the process of deciding the percentages for the portfolios. Further, the

floating charge and cash held by the issuing companies was standard protection for

bonds of this nature, and better than some regulated bonds.

18. The Authority accepts that BHIM had sight of advice from a London law firm. However,

the law firm was HJL’s legal adviser and the advice was given to HJL, which later gave

a copy of the advice to BHIM. As such, the advice was not independent of HJL, nor

was it independently corroborated. As the advice was obtained for HJL’s purposes,

there was a risk that it may have been based on incomplete or inaccurate instructions,

or given without proper consideration of BHIM’s circumstances. In any event, the legal

opinion did not consider or address the risk profile of the Bonds, or their suitability for

BHIM’s customers.

19. Mr Freer’s representations do not address key areas of the Authority’s case. Not only

did Mr Freer fail to obtain adequate information to conduct due diligence on the Bonds,

but he failed to adequately assess the information that was available to him. Had he

done so, he would have realised that the Bonds were high risk (due to the factors

described in paragraph 4.21 of the Notice).

20. Mr Freer has not provided, and the Authority has not identified, any evidence that a

market maker was in place for the Bonds. The Authority notes that BHIM’s customers’

pension funds do not appear to have been invested in the Bonds until 5 February 2015

(the day before the Bonds were admitted to trading), which might support Mr Freer’s

assertion that the SIPP Providers would not purchase the Bonds unless they were

listed. However, it does not follow that, at the time BHIM started advising customers

through the Pension Review and Advice Process (and customers started acting on that

advice), the Bonds would be listed. Therefore, this remained a risk that customers

were not made aware of. Further, listing the Bonds did not guarantee that there would

be a market for them, and in practice, it appears that the Bonds have not been traded

through an exchange.

21. There may have been a difference in the risk profile of the portfolios; some may have

been riskier than others. However, given that all the Bonds were high risk, and the

portfolios contained only the Bonds and a small percentage of cash, the Authority

considers that the portfolios containing the Bonds were all high risk, and that it was

misleading to describe the portfolios as “cautious”, “moderate” and “adventurous”.

The service proposition was not misleading

22. Mr Freer considered the products available in the whole of the market. Having done

so, he formed the view that the Bonds (and the portfolios of the Bonds) gave better

returns in respect of their risk profile than other funds available at that time.

23. The advice process was not intended to have 100% of customers invested in the

Bonds. It was designed to filter out those customers that BHIM felt would be

appropriate for the Bonds. BHIM’s intention was that all other customers would receive

holistic advice. Therefore, it was not a ‘one size fits all’ approach, and this can be seen

from the fact that only 18% of customers were advised to invest in the Bonds.

24. Mr Freer accepts that he may have agreed to template documents (including the

service proposition) with a fairly flippant response. However, BHIM had been assured

by CAL that the service proposition had been assessed as compliant by other firms,

and Mr Freer agreed with that assessment given what he had seen at the time.

25. The Authority accepts that the Pension Review and Advice Process was structured to

filter out certain customers. However, in practice, there was no assessment of

customers’ options; the process simply led to the Bonds being recommended on the

basis of whether the client expressed a preference for fixed returns or capital

protection. If a customer answered ‘yes’ to either of those triggers, the Bonds were

recommended. These filters were too high level to effectively identify those customers

for whom the Bonds would be suitable.

26. The Bonds were the only product available for recommendation through the Pension

Review and Advice Process. HJL had a material financial interest in a number of the

Bonds and two of its directors were directors of the companies issuing the Bonds.

Further, HJL influenced the design of the pension switching advice model on which the

Pension Review and Advice Process was based, acted as an introducer in that process,

and performed certain of the Outsourced Functions.

27. In the circumstances described in paragraphs 25 and 26 above, it was clearly

misleading for BHIM to describe its services as independent and based on a

comprehensive analysis of the whole market.

28. Mr Freer’s assertion that only 18% of customers were advised to invest in the Bonds

appears to be incorrect and misleading. The statistics provided by CAL to Mr Freer on

15 July 2015 show that of a total of 2,142 cases received by BHIM, 1,967 were “in

progress”. Of these, only 540 cases (27.5%) are listed as “not proceeding”. Of those

cases that did not proceed, 70% did not do so because of actions taken by the

customers rather than as a result of any specific recommendation by BHIM to the

customer. Only 4.1% of cases that did not proceed (1% of total cases referred to

BHIM) did not do so because the customer was advised against doing so by BHIM.

29. In relation to Mr Freer’s view that other IFAs had assessed the documents, including

the service proposition, as compliant, the Authority considers that it was not

appropriate for Mr Freer to rely on other IFAs, especially without seeking to understand

how they reached their view. Further, while Mr Freer claims to have agreed with the

assessment conducted by other IFAs, it appears he reached this view only three days

after becoming aware of the proposed business model, and after having taken only

four hours to review the specimen documents provided by HJL.

It was not unreasonable for Mr Freer to agree for BHIM to adopt the Pension Review and

Advice Process within 24 hours

30. It was not unreasonable for Mr Freer to have agreed that BHIM should adopt the

Pension Review and Advice Process within 24 hours of being introduced to it by Mr

Ward, given: (i) the documentation that had been provided; (ii) the process was

already in place; and (iii) adequate due diligence had already been done on CAL.

31. The Authority does not consider Mr Freer’s recollection of the circumstances to be

accurate. On 10 September 2014, Mr Freer agreed with Mr Ward that BHIM should

adopt the Pension Review and Advice Process. At that time, Mr Freer had only seen

specimen documents to be used (or being used) by other IFAs. He had not yet seen

the final paperwork. The process was not yet in place and Mr Freer had not yet met

anyone from HJL or CAL.

The Pension Review and Advice Process was a form of robo-advice

32. The Pension Review and Advice Process was no different to a robo-advice model or

the use of decision trees.

33. BHIM did not hold itself out as providing robo-advice, so it is not an appropriate

comparison. If a firm adopts a robo-advice model, they should clearly explain to

customers that a level of automation is being used, so that the customer is able to

understand the nature and risks of the service being offered and take investment

decisions on an informed basis. BHIM gave customers the opposite impression. The

Authority has found a number of examples where customers were told that:

a. after the fact-find, an IFA would take a number of days to review the

customer’s circumstances and make a recommendation; and

b. an adviser would search the market so that the recommendation was

tailored to the customer’s circumstances.

Mr Freer maintained adequate oversight of the process

34. Mr Freer took reasonable steps to maintain control of the Pension Review and Advice

Process. This was done through an online sign-off process, as well as onsite monitoring

and file reviews. Every file was reviewed by Mr Freer before it was sent to the

customer, and he had the ability to reject a file. This was almost a full-time job.

35. The compliance checks were carried out using a form created by a well-known and

respected compliance firm.

36. Mr Freer did not conduct a file review until approximately four months after CAL had

begun to perform the Outsourced Functions. During that period, 112 of BHIM’s

customers had already switched or transferred their pensions to SIPPs with the

underlying investment in the Bonds. The Authority considers that it was inappropriate

to allow a third party to conduct important operational functions on behalf of BHIM for

such a lengthy period without appropriate oversight.

37. When Mr Freer did conduct file reviews, they were superficial and did not consider the

suitability of advice given to BHIM’s customers. In particular, the file review sheets

obtained by the Authority focus on the accuracy and completeness of the data in the

customer files rather than the suitability of advice. It does not appear that Mr Freer

reviewed every Suitability Report. In January 2015 Mr Freer was surprised by the large

payment BHIM received from one of the SIPP Providers. If he had reviewed every file,

he should have been aware of the likely number of cases referred to the SIPP Provider,

and therefore should have had a better understanding of the payment that would be

received. Further, Mr Freer’s explanations to the Authority as to how he carried out

his reviews were inconsistent. On one occasion Mr Freer said that it took around two

hours to review a Suitability Report. However, on a later occasion, he explained that

the review would take 5-10 minutes.

38. The accounts Mr Freer has provided to the Authority about the process he adopted in

carrying out his reviews, and the mechanism he used to reject a file, are unclear. Mr

Freer only had access to the Software for part of the period in which BHIM used the

Pension Review and Advice Process. Furthermore, the Software did not contain a

mechanism for Mr Freer to approve or reject a Suitability Report before it was sent to

a customer.

BHIM conducted adequate due diligence on CAL

39. BHIM simply purchased leads and basic administration services from CAL and it was

wholly legitimate to do so. In these circumstances, it is not clear what more due

diligence should have been done on CAL.

40. Due diligence was carried out by Mr Ward and another individual at BHIM. BHIM

checked Companies House records and the Authority’s website, and visited the firm

to ensure that it was a real company. The Authority has given no indication of what

other due diligence should have been carried out.

41. The Authority does not accept that BHIM simply purchased leads and basic

administration services from CAL. The services provided by CAL under the Pension

Review and Advice Process (and described in the service agreement between CAL and

BHIM) were both important and necessary for the giving of advice, and included, for

example, the conduct of fact-finds. Further, leads were provided by HJL, not CAL.

42. While the Authority has not prescribed, in specific detail, the due diligence that should

have been carried out, given the extent that BHIM outsourced important functions

under the Pension Review and Advice Process, it should have been clear that more

due diligence needed to be done before entering into the service agreement with CAL.

43. In any event, the due diligence that BHIM carried out, and that was described by Mr

Freer, both in interview with the Authority, and in his representations on the Warning

Notice, would not have assisted BHIM in understanding whether CAL was suitable to

perform all of the Outsourced Functions.

The Authority’s characterisation of Mr Freer’s motivation

44. Mr Freer accepts that BHIM adopted the Pension Review and Advice Process for

financial gain through increased fees and in order to increase the number of customers

that the Firm could advise. This is how any business makes money. However, it was

not to the detriment of consumers.

45. In any event, Mr Freer did not believe that BHIM could expect 100 cases per month,

rising to 100 cases per week (as Mr Ward had been told). Mr Freer was correct in this

belief, as these levels of new business never materialised.

46. The Authority accepts that it is normal for a business to seek to make a profit.

However, it was not appropriate for BHIM to do so by disregarding the interests of its

customers. Even if Mr Freer did not believe that BHIM would receive 100 cases per

week, the Authority considers that he was motivated by the prospect of himself and

the Firm financially benefitting, without properly considering whether customers would

receive suitable advice. Accordingly, in allowing BHIM to adopt and use the Pension

Review and Advice Process for financial gain, Mr Freer closed his mind to the risk that

BHIM’s customers would receive unsuitable advice and were therefore at risk of

investing in unsuitable products.

BHIM did not give unsuitable advice

47. Mr Freer is not clear what inadequate advice had been given. All clients that wanted

more than just a pension review were referred to BHIM’s Cheltenham office for follow

up work.

48. Mr Freer disputes the findings in the Authority’s file review. In particular:

a. BHIM did not advise two customers in relation to Pension Transfers (contrary

to paragraph 4.58(1) of the Notice);

b. in the case where the customer lost existing benefits, the customer was

advised of the loss of benefits, but wished to proceed;

c. the ‘retired’ customer referred to at paragraph 4.58(3) of the Notice was

aware of the timescales involved, and had taken a drawdown from his fund;

and

d. the customer in paragraph 4.58(4) of the Notice was aware of the additional

cost as it was set out in the Suitability Report.

49. For the reasons described at paragraph 4.54 to 4.58 of the Notice all of the 20 files

reviewed by the Authority contained unsuitable advice and failed to comply with

Handbook rules.

50. Mr Freer has not provided any explanation as to why the advice given in the files

referred to in paragraph 48(a) above did not relate to Pension Transfers. Both cases

appear to involve the transfer of benefits within the Pension Transfer definition.

51. The representations in paragraph 48(b), (c) and (d) relate to customers’ decisions,

rather than the suitability of advice given to those customers. Accordingly, they do

not address the Authority’s concerns that the advice was unsuitable. In any event, the

Authority considers that the explanations given to customers in the Suitability Reports

and in any subsequent meetings and calls were inadequate. As a result, customers

were not in a position to make an informed decision as to whether to act on the advice

given to them by BHIM.

There were appropriate measures to monitor Pension Transfers

52. BHIM had appropriate measures in place to monitor Pension Transfers. There were six

cases that could be construed as Pension Transfers. However, five of these did not

take place and one of them was not an occupational pension scheme.

53. Mr Freer has not specified the ‘appropriate measures’ that he refers to in his

representation. As such, it is not clear what measures he is referring to. Contrary to

Mr Freer’s assertion, there were not appropriate measures in place. In particular, the

Software had been developed to allow advice on both Pension Switches and Pension

Transfers. As a result, information about occupational pension schemes (with the

exception of final salary pension schemes) could be added to the system without

generating a warning that advice should not be given because BHIM did not have the

relevant permission.

54. In relation to the five transfers that Mr Freer claims did not take place, BHIM acted

outside its permissions by giving advice, regardless of whether a Pension Transfer

took place. In any event, it appears from the SIPP Providers’ records that four of the

five cases mentioned by Mr Freer did result in Pension Transfers.

55. Mr Freer has not explained why he considers that one of the transactions did not relate

to an occupational pension scheme and, if it does not, why it does not relate to a

Pension Transfer (as Pension Transfers do not relate solely to transfers from

occupational schemes). Accordingly, the Authority is not persuaded by this

representation.

The Authority told BHIM that it could do SIPP business

56. The Voluntary Requirement entered into by BHIM on 17 September 2015 was

amended following agreement with the Authority. This amendment permitted BHIM to

advise on pension switches to platforms. The amendment was agreed at a meeting

attended by Mr Ward and BHIM’s lawyer. Mr Ward later informed Mr Freer of the

amendment. Mr Freer was entitled to rely on Mr Ward’s account of the meeting.

57. The Authority understands that Mr Freer is referring to a meeting that took place on

14 August 2015. The note of that meeting records that there was a discussion in

relation to a proposed requirement to be imposed on BHIM so that it would prevent

“SIPP pension switching advice” rather than “all pension switching advice”. However,

there is no mention of platform switches or of the Authority agreeing that switches to

platform would be permitted. These discussions ultimately led to the imposition of the

Voluntary Requirement.

58. In the email correspondence between the Authority and BHIM’s lawyers prior to the

meeting on 14 August 2015, there is no confirmation from the Authority that BHIM

would be allowed to conduct switches to platform, or any indication from the Authority

that any such switches would be considered outside the terms of the proposed

requirement.

59. Following the meeting on 14 August 2015, the Authority agreed to vary the scope of

the proposed requirement so that the Firm would be restricted from providing advice

in relation to pension switches to SIPPs (rather than all pension switching advice).

There was no amendment after the Voluntary Requirement was imposed by the

Authority to allow switching to platforms as Mr Freer suggests.

60. It was not appropriate for Mr Freer to rely on Mr Ward’s account of what had been

agreed with the Authority. As the person at BHIM approved to perform the CF10

(Compliance Oversight) controlled function, he should have taken steps to confirm

that these types of transactions were permitted, such as contacting the Authority

himself or asking to see written confirmation from the Authority, especially as he knew

that, if these transactions were not permitted, BHIM would be in breach of the terms

of the Voluntary Requirement.

Mr Freer did not intend to mislead the Authority

61. Mr Freer did not act with any malicious intent when providing the new business register

to the Authority. Mr Freer had taken time off work for health reasons. He did not

travel to the office very often and therefore relied on administrative staff to provide

the data he required. The information he was given (and which he provided to the

Authority) turned out to be inaccurate, but was rectified once he found out.

62. Mr Freer did not remember when board minutes were introduced, although he thought

that it would have been after much of the Relevant Period had elapsed. It is not

something that he paid attention to and he did not have copies of the minutes.

63. There were significant discrepancies between the new business register that Mr Freer

was given by a BHIM employee and the new business the Firm had in fact carried out.

The new business register contained only 29% of transactions which had taken place

during the period in question. Accordingly, approximately £60,000 of the

remuneration received by BHIM from a SIPP Provider was excluded from the

information provided to the Authority.

64. In interview with the Authority, Mr Freer said that he did not think the new business

register looked “quite right”, so he queried the information contained in the register,

but did not check it himself. Had Mr Freer taken even basic steps to check the

information provided in the new business register, he would have realised that the

information was substantially incomplete and contained only a fraction of the business

conducted by BHIM.

65. In relation to the board minutes, it is not clear why Mr Freer failed to give the

explanation in his representations when previously interviewed by the Authority.

Instead, Mr Freer told the Authority that he was not involved with the response to the

Authority’s information request for board minutes. Further, contrary to Mr Freer’s

contention that board minutes were introduced after much of the Relevant Period, the

Authority has obtained BHIM’s board minutes dating back to 14 July 2014.

Representations received from HJL

66. HJL’s representations (in italics), and the Authority’s conclusions in respect of them,

are set out below:

There is no reason to mention HJL, Mr King or Mr Stephen

67. HJL did not provide any administrative or equivalent services to BHIM. Such services

were provided exclusively by CAL. There is therefore no reason to mention HJL, Mr

King or Mr Stephen in the Notice.

68. The Authority considers that when BHIM adopted the Pension Review and Advice

Process, it was intended that, initially at least, HJL would perform the Outsourced

Functions. Accordingly, a draft service agreement between HJL and BHIM was sent to

Mr Ward on 12 September 2014. It appears that HJL and CAL later agreed that CAL

would perform the Outsourced Functions, and on 13 October 2014, CAL entered into

an agreement with BHIM to do so. There is documentary evidence prior to 13 October

2014 showing that certain of the Outsourced Functions were being performed at that

time. For example, letters were sent seeking authority from customers to contact their

existing pension provider. Given that the agreement with CAL was not in place until

13 October 2014, it appears that HJL was carrying out these functions before that

agreement was in place. As such, the Authority considers that it is appropriate to refer

to HJL performing certain of the Outsourced Functions prior to 13 October 2014.

69. The Authority also considers it appropriate to refer to HJL as it generated leads for

BHIM under the Pension Review and Advice Process and it had a material financial

interest in the products recommended through that process.

70. For the reasons given in paragraphs 77 and 82 below, the Authority considers it

appropriate to mention Mr Stephen and Mr King, and their common directorships.

HJL did not develop the Software

71. HJL did not develop the Software or the pension switching advice model. They were

instead designed by two individuals at another company independent of HJL

(“Company A”).

72. The Authority accepts that HJL did not create the Software, and that it was instead

created by two individuals at Company A. However, the Software was developed at

the request of HJL. HJL initially sought an efficient way to provide customers with a

pension comparison, to see whether the customer’s existing pension charges were

reasonable. A system was developed by Company A in around 2011/2012 in line with

this request. This system was an early version of the Software.

73. In 2013, HJL asked Company A whether an advice model could be ‘bolted on’. HJL

staff assisted Company A to understand the products that would be recommended

through the Software so that Company A could develop the triggers for the advice.

HJL also led the creation of the templates of the documents which were used in the

Pension Review and Advice Process and which enabled a complete, fully advised

pension switch. The Authority therefore considers that HJL initiated and influenced

the development of both the Software and the pension switching advice model.

HJL did not process leads obtained through unlawful cold calling

74. HJL was at no time involved in cold calling activities itself. All clients introduced to the

Firm were obtained by lead generation businesses through a generic financial

promotion process, which did not involve the lead generator in identifying any specific

investment or a specific provider of investment services. To the extent the activities

of the lead generators involved unsolicited real-time financial promotions, those

promotions were exempt from the financial promotion restriction in section 21(1) of

the Act by virtue of Article 17 of the Financial Service and Markets Act 2000 (Financial

Promotion) Order 2005.

75. The Authority has not found that HJL cold called customers. Instead, the Authority has

found that Mr Freer and BHIM failed to take any steps to establish that the lead

generators used by HJL generated their customer introductions in an appropriate

manner and did not use unlawful cold calling. As such, Mr Freer (and BHIM) did not

know whether leads were generated by unlawful cold calling. In fact, the Authority

was contacted by three customers complaining that they had been cold called by one

of the lead generation companies used by HJL.

Mr Stephen properly managed any conflict of interest

76. Mr Stephen took careful steps to manage any potential conflicts of interest, including

taking legal advice on issues surrounding potential conflicts. From his and HJL’s

position, relevant potential conflicts were properly managed.

77. This Notice relates to the conduct of Mr Freer and the steps he took to mitigate the

risks posed by Mr Stephen’s common directorships. The Authority has made no finding

as to whether Mr Stephen adequately managed any actual or potential conflicts that

he had. However, it is necessary to describe Mr Stephen’s common directorships in

the Notice in order to explain Mr Freer’s misconduct.

HJL was not inherently unsuitable for the purposes for which it was retained by BHIM

78. HJL’s qualification to operate the Software was its having staffing and organisational

capacity to do so. Moreover, the Authority has failed to explain on what basis it

implicitly contends that HJL was unsuitable.

79. When outsourcing functions to a third party, authorised firms must comply with

Principle 3 of the Authority’s Principles for Businesses. They should also have regard

to applicable rules and guidance in SYSC. In relation to BHIM, the relevant guidance

is set out in paragraph 4.47 of the Notice. In the light of Principle 3 and this guidance,

Mr Freer should have taken reasonable steps, such as conducting adequate due

diligence, to ensure that HJL was suitable to perform the functions that were

outsourced to it.

80. Mr Freer did not take reasonable steps, or conduct adequate due diligence, even

though it was intended that HJL would correspond with customers on behalf of the

Firm, and would perform functions that were both necessary and important for the

giving of advice (such as the conduct of fact-finds). As part of Mr Freer’s due diligence

he could have considered, for example, the suitability of HJL’s management and the

quality of its staff.

Reference to Mr King’s common directorship

81. Mr King was a director of HJL for part of the Relevant Period and was also a director

of the entities that issued the Bonds. However, the corporate governance of those

entities was structured in such a way that he was able to recuse himself from directors’

decisions in case of conflict. The nature of the investments of the companies issuing

the Bonds was such that there were few, if any, circumstances in which Mr King

needed to recuse himself.

82. For the reasons set out in paragraph 77 in relation to Mr Stephen, it is necessary to

describe Mr King’s common directorships in the Notice in order to explain Mr Freer’s

misconduct and the Authority has made no finding as to whether Mr King adequately

managed any actual or potential conflicts that he had.

Anonymisation of HJL, Mr Stephen and Mr King

83. The Notice would achieve what it is intended to achieve even if HJL, Mr Stephen and

Mr King are not identified by name. HJL’s commercial interests will be significantly

harmed if it is named in the Notice.

84. The Authority has decided to refer to HJL by its name for two reasons: First, because

of HJL’s central role in the Pension Review and Advice Process. In particular, HJL

initiated and influenced the development of the pension switching advice model,

brought the model to the attention of the Firm, performed certain of the Outsourced

Functions and had a material financial interest in a number of the Bonds. In these

circumstances, the Authority considers it appropriate to mention HJL by name so that

its findings, and the factual background (including the key parties involved), can be

easily ascertained by the recipient of the Notice, as well as by any other reader of the

Notice. Secondly, the Authority considers it possible that HJL could be identified from

the description of the matters contained in the Notice even if anonymised as the

Voluntary Requirement is published on the Authority’s Financial Services Register and

names HJL as one of three companies that BHIM must cease business relationships

with. As such, the Authority considers it unlikely that HJL will be materially prejudiced

as a result of being referred to by its name in the Notice.

85. The Authority has decided to name Mr Stephen and Mr King for similar reasons. As

Companies House records show they were the only two directors of HJL during the

period that BHIM was using the Pension Review and Advice Process, the Authority

considers they could be identified even if anonymised. Further, as directors, they

were responsible for the day-to-day operation of HJL during the Relevant Period.