The Financial Services Authority (FSA) took action against three of the firm's subsidiaries for "serious record keeping and monitoring inadequacies".

The failure meant investors might have agreed to new deals that may not have been in their interests, the FSA said.

St James's said it had changed its procedures to prevent similar problems in future.

The fine was shared equally between the three firms St James's Place UK, St James's Place International and St James's Place Unit Trust Group.

An FSA probe found that the failings had exposed investors to unsuitable "replacement sales" - or surrendering a policy from a rival for a new contract.

The problem was originally identified in August 2001 by the FSA's predecessor the Personal Investment Authority (PIA).

'Necessity'

The PIA enforcement team found that insufficient information was kept on file about the customers to fully assess whether the recommendation was suitable for the customer.

FSA director of enforcement Andrew Proctor said: "Firms must understand that procedures to monitor advisers, particularly where high-risk transactions are being recommended, are not a 'nice to have', they are a necessity."

In a statement, St James's said it carried out a thorough review of its procedures as soon as its board was made aware of the problems in 2001.

Necessary changes to ensure similar problems do not occur are now in place, it added.

Hugh Gladman, the group's legal and research director said: "We very much regret that, previously, our record keeping for replacement business was not of the required standard."