SIB accuses Prudential of giving clients wrong advice
Wednesday 21 May 1997
The company is accused in the SIB report of wrongly advising clients to place money in one of its popular products, the Prudential Savings Account, to the exclusion of more suitable investments, it emerged yesterday.
The report follows a two-month investigation by the regulator's monitoring team. A draft was submitted to the company at the end of March.
In a bizarre twist, the SIB has also complained that members of its monitoring team were shadowed by Prudential compliance staff who used pre-arranged hand signs to prevent those being interviewed from giving out too much information.
Each night, the Prudential team was instructed to prepare detailed reports on the interviews carried out and any records examined by the SIB monitoring staff that day.
Jim Sutcliffe, chief executive of Prudential's UK retail operation, admitted yesterday that with hindsight, the actions of some its shadowing team may have been "over-eager" and that their actions were interpreted as "adversorial". But he disputed the accuracy of some of the SIB findings.
The SIB's final report is expected in the next few weeks following last- minute representations on points of fact by Prudential.
The City regulator will then decide whether to issue a public reprimand against Prudential, the heaviest penalty it can impose. The SIB last night refused to comment.
The SIB's findings will be a serious embarrassment to Prudential, which has long prided itself as being a cut above other financial services institutions.
The company has long been hostile to the Personal Investment Authority, the current front-line financial watchdog, arguing that it is an inadequate regulator and statutory controls are needed instead.
The Prudential is alone among insurers in being regulated directly by the SIB. However, Scottish Amicable, the insurer the Prudential aims to take over before the end of the year, will remain under the PIA's control.
The allegations against Prudential centre on its Savings Account, a high- selling contract linked to the company's life fund. Such policies suffer from so-called "fiscal drag", which is underlying taxation on the life fund itself.
They may therefore not be suitable to higher-rate taxpayers, who would be required to pay even more tax on their investment, or to non-taxpayers who need not be paying tax on their savings. The SIB's draft report claims that in some cases, Savings Account schemes were wrongly sold to such investors.
The report also claims that the company's salesmen were selling a second Prudential pension to many customers, incurring new set-up charges, rather than simply arrange a top-up to the existing one.
In both instances, the SIB alleges that the Prudential has been unwilling to compensate victims unless they come forward and ask for redress.
The company is also said to be unprepared to bring together separate records from two computer systems that would allow it to identify and compensate those persuaded to buy two separate pensions.
The Prudential did identify questionable selling practices among members of its salesforce in the Sheffield area two years ago. However, the report says surveys to discover the extent of potential mis-selling were restricted to the local area itself, rather than extending the inquiry nationwide as the SIB believes is needed.
Finally, the report adds, the company's training methods do not allow it to say with certainty whether the salesforce is capable of putting its newly-learned financial skills into practice.
Mr Sutcliffe said yesterday errors may have been been made but in many cases the advice given on Savings Accounts was not necessarily wrong.
The investigation into the Sheffield episode had covered 19 branches, he said: "However, we are aware SIB thinks we should have investigated more branches. They are not confident of the standards of our investigation. We will redress that and look at a new sample of cases."
Mr Sutcliffe rejected as "factually incorrect" suggestions that pensions compensation was not being paid. He said that for three years now the automatic policy had been to refund all charges on a second pension sold to Pru customers.
He acknowledged, the "hand signals" issue had been mentioned to him. This was carried out by one or two members of a separate "business quality unit" attached to the compliance team.
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