The firm of advisers, which specialises in retirement financial planning, was also ordered to pay pounds 23,400 costs.
'The level of the fine is derisory,' said Jean Eaglesham, CA's head of Money Policy. 'It's an insult to those investors who assumed they could trust Knight Williams and have lost money because of advice that broke the regulatory rules.'
What is more, Fimbra's action will not bring an end to the bitter dispute between the company and a group of dissident investors who have come together in the Knight Williams Investors Action Group.
However, the fine may help to smooth Knight Williams' entrance into membership of the new regulatory authority, the Personal Investment Authority (PIA). Without this, it could ultimately be unable to continue its business.
'Will the PIA now refuse to admit Knight Williams, or does it lack the courage to do so?' Ms Eaglesham said.
The Investors Action Group, which claims about 250 members, has submitted an analysis of 170 complaints against the firm to the Treasury. Knight Williams responds in its defence that the vast majority of its 24,000 clients are satisfied.
Fimbra's charges against the firm included its failure to keep proper records. Inadequate documentation meant the firm could not demonstrate it was meeting its legal duty to give best advice, Fimbra said.
A small number of Knight Williams' clients have successfully been awarded compensation through Fimbra's complaint process. Last year, 16 shared awards of pounds 90,000.
The Securities and Investments Board, the senior regulatory organisation, is encouraging investors to try to resolve any complaints directly with Knight Williams. The firm said that it would respond 'responsibly and carefully' to clients with complaints, and would also re-examine previous complaints where investors remain unhappy.
However, it also said that it did not accept that any customer had suffered financially from its breach of the regulatory rules.Reuse content