The latest FCA Investigation - Stand By Your Beds!
Written on 24/07/2019

It wouldn’t be financial services without the FCA starting some thematic review or commencing some form of investigation into a particular practice or areas of advice, the latest seems to be what are termed “high risk investments”. 

Now the FCA has gone on to clarify that they are not referring to adventurous funds or those that have large volatility ratings but rather those that have “unusual, speculative or complex investment structures” 

Now that to me sounds all rather vague but allow me to try to put your mind at rest as to whether you might need to be concerned. 

The FCA has stated that they have already opened investigations into financial advisers providing unsuitable pension transfer advice (Liberty SIPP springs to mind), firms using unclear or unfair promotions (guaranteed returns from guaranteed equity bonds anyone?) and scams where interconnected firms induce investors to invest without disclosing or mitigating conflicts of interest or fully disclosing fees and charges (Costa Rican plantations anyone?) 

Now I know that for the most part you won’t be in this category but what this does tell me is that the FCA are looking even closer at the following: 

Defined Benefit transfers into SIPPs

Promotional material regarding investments

Firms that are directly connecting their advice arm to a tied investment solution 

I am going to pull no punches here. 

If you carry out DB transfers, promote particularly complex investments or put all your client monies into your own investment solution then you need to be reading this and furthermore need to submitting all your work to us to check, before you deliver your advice to your client, if you are not taking extra precautions then you are leaving yourself wide open to litigation and this is an avoidable risk.

Taking one extreme example, HARLEQUIN, we can see now how the problem could and probably should have been avoided by advisers. 

Harlequin was a luxury hotel development that turned out to be largely never built and there have been 500 cases brought to FOS that they are transferring to the FCSC. The SIPP provider, GPC placed a significant level of client investment into this scheme and according to FOS, the level of investment is “considerable”. (FT Adviser back in 2017 suggested this figure was £400 million and for 6,000 investors) 

Now back in 2013 the Serious Fraud Office was looking at Harlequin following a warning from our previous regulator, the FSA and then Harlequin went into liquidation in 2016 and then Mr Ames, Harlequin’s owner, was charged with Fraud by the SFO. 

Advisers getting their clients to invest into the scheme were paid an initial commission it is said of up to 9% (so if £400 million was invested that’s £36,000,000 in commission!) 

Now unregulated investments have their place, they are not illegal just unregulated and they should really only be the reserve of the ultra-sophisticated and highly experienced investor (that means for most of you none of your clients) I am going to bring something into this from my world, that of Corporate and DB pension management, no DB scheme invests in these things! Now this is partly because most Trustees and Actuaries are trapped in the 1950’s in how they think but it is partly because the risk of such things are just too great and they won’t risk it with other people’s money! 

How could this have been avoided then? 


If it sounds too good to be true then chances are it isn’t.

If it is a “unique” investment in some far-flung location then be very wary.

If it is unregulated then be cautious.

If it is being offered by someone that cold-called you and they are not a regulated adviser, be suspicious.

If it promises very high returns for very low risk then alarm bells should be ringing. 

I am not saying that as an adviser you cannot look beyond the vanilla (remember that some years ago many viewed VCTs with horror and supreme scepticism and look at them now) nor do you need to avoid being creative for your clients BUT what you absolutely must do is what……? 

Diligence!! (Come on admit it you knew that word was coming) 

Check the thing out, research it, check with the FCA, check with Google even, learn about it and only when you really understand it and how it works and can articulate to anyone this, should you be considering such an investment for anyone. 

If you only knew the level of research and due diligence that goes into just adding a new share to an investment fund, you’d appreciate just how careful you need to be. 

So how does all this link back to the latest FCA investigations and whether you should be worried? 

It’s a direct link to you as an adviser and how you research the things that you recommend to your clients. 

It reminds us that when we advise someone to invest their money into an investment, we have to show logical and clear reasons for it, we do this through research and due diligence. We match a client’s personal objectives to a solution and we use independent research (i.e. from a third party) to show that what we are recommending can in fact meet our client’s needs. We at IFAC want our advisers to be as safe as possible from challenge, we don’t want to hear that a complaint has been received suggesting inappropriate or unsuitable advice to invest and certainly not into something highly complicated or suspect (except IHT investments which always seem uber complicated!) we want you to be able to recommend solutions for your clients that are robust and logical and that can only serve to instil more confidence from your client, in your skills as their trusted adviser. (This is how it should be)

Now things are afoot at IFAC that should be able to add considerably to your day, I can’t divulge just yet what these might be but if you have been reading my articles (and if not why not?!) you’ll know that I love a bit of diligence, I’m a huge fan of research and I am fond of evidence! All of this is designed to help you give better advice, more robustly and more profitably (let’s face it where else does the “accused” pay the “court fee” except when getting a FOS complaint? And despite what FOS say the fee is always due from the firm the complaint is about even if it is not upheld) 

So IFAC want to be able to help our advisers avoid the risk of any complex or unregulated investments and to hopefully lower the risk of receiving a FOS complaint and we plan to do this, so watch this space….. 

For now, on every investment you recommend make sure “your compliance ducks are firmly in a row” 

Compare the existing one (if there is one) in detail to your client’s objectives, to show how it is not meeting them.

Conduct research using a reputable third party tool to generate a short list of possible solutions.

Compare the results of your research to their existing plan (show how your these new solutions could do it better)

Check the provider out using research too and evidence why they are good for your client (even if hey are an existing client of theirs)

Compare investments (not just performance but use ratios too and that includes With Profits) 

All of this should weed out anything odd or dodgy or just too good to be true and also you are evidencing it, so in case of future challenges you have the logical evidence to show how you got your client from the proverbial A to B and more importantly, why it was a good idea! 

Let me finish by saying that this is unlikely to be the last issue/scam/worry/investigation, as we know there are always those out there willing to act less than ethically to get paid (families with wills are a good example) but if you follow my “rules” and strive to do the best every time, I fail to see how you can go amiss….. 

IFAC stands ready, as always to help you do this. 

Niel out!

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