The Financial Conduct Authority (FCA) has moved to ban and fine Tailormade Independent chief executive Alistair Burns, saying he "lacked the competence" to ensure suitable advice was given by the firm.
The regulator imposed a £233,600 fine on Burns and wants to ban him from performing any senior management or significant influence function in relation to regulated activity in financial services.
However, Burns referred the decision to the Upper Tribunal, which will now determine the appropriate action for the FCA to take.
The FCA alleged Burns had failed to ensure Tailormade provided suitable advice to its clients, as well as fairly managing conflicts of interest relating to him and others at the firm.
It had already banned and fined ex-directors Lloyd Pope and Peter Legerton last year for not assessing the suitability of clients' investments made through the firm.
Main Harlequin distributer
Between January 2010 and January 2013 Tailormade advised 1,661 customers to invest £112,420,985 in alternative investments, many of which were not typically permitted by their existing pension schemes.
The investments were made possible through pension-switches to self-invested personal pensions (SIPPs) and included products such as green oil, biofuels, farmland and overseas property.
Tailormade was the main distributor of £400m troubled unregulated property scheme Harlequin. In September 2013 the firm entered liquidation because it could not afford to finance redress payments to clients.
As of September 2016 the Financial Services Compensation Scheme (FSCS) has upheld 919 claims of unsuitable advice against Tailormade, with compensation of more than £40m paid to date, more than half of which were related to Harlequin.
'Incompetent', not reckless
According to the FCA, the personal recommendations process Taylormade used to advise customers was inadequate.
The process failed to take into account a customer's individual circumstances, demands and needs, and instead resulted in personal recommendations being made predominantly on the basis of the customer's objective of using their existing pension funds to purchase alternative investments, the regulator said.
It also alleged Burns had received "significant financial benefit" from his positions as both a director and shareholder of an unregulated introducer also operating under the Tailormade name, which referred clients to the firm.
As such, Burns and others at Tailormade had received advice fees from the clients as well as commission paid to the introducer, creating a conflict of interest that should have been managed properly and disclosed to clients, the FCA said.
However, despite this the FCA decided Burns had not deliberately or recklessly failed in his duties. Instead he had "lacked the competence" to perform any senior management or significant influence functions in relation to regulated activity in financial services.
Continuing Square Mile’s series of informal interviews
Programme launches July 2017
'Focus on geopolitical risk'
'Project to remain within £80m budget'