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Adviser appeals £90k fine over £9.7m Ucis sales

An adviser firm is appealing a ban and £90,000 fine from the FSA after it advised clients to invest a total of £9.7m into unregulated collective investment schemes.

The FSA is seeking to ban Bath-based IFA Pave Financial Management and its directors Timothy Pattison and Stephen Hocking over the Ucis sales, and is also looking to fine Pattison £90,000.

Decision notices were issued against Pave, Pattison and Hocking in November. All three parties referred the matter to the Upper Tribunal on December 1.

The decision notice against Pattison says that between November 2005 and August 2010 Pave exposed clients to “very significant risk of financial loss despite no evidence that they could sustain such losses”.

It also states Pattison failed to take reasonable steps to understand the restrictions around promoting Ucis before recommending them to clients.

Ucis cannot be promoted to the general public in the UK and should only be proposed to certain limited categories of investors such as sophisticated investors and high net worth individuals.

The FSA says at least 65 out of 200 of Pave’s clients were advised to invest up to 80 per cent of their investment portfolio in Ucis.

Some of Pave’s clients were advised to remortgage their homes to invest in Ucis with no record that their capacity to sustain losses was assessed. Some clients were also advised to switch from existing pension schemes and to set up Sipps where the underlying investments included high concentrations of Ucis.

On one occasion the FSA says a Sipp was set up to invest in Ucis despite an external pension transfer specialist advising against the move.

Out of the £9.7m invested in Ucis through Pave, at least £1.2m was invested in schemes that have since been suspended or liquidated.

The FSA says Pave told clients it was providing a fee-based service with any income from commission offset against the fees.

The regulator says there was a lack of transparency in the way Pave charged its clients. Pave operated a notional account which recorded charges paid by the client and the cost of the advice based on time spent on the client by Pave staff.

Between July 2008 and April 2009 Pave charged a married couple £11,393 for attending five meetings. One client calculated that over 10 years the equivalent of 25 per cent of their portfolio had been paid to Pave in fees and charges.

The decision notice says Pattison has criticised the FSA for not acting in a fair and balanced way, and misinterpreting evidence. He accepted he had breached Ucis promotion rules but argued Pave did not mislead clients about fees. Pattison said the ban and £90,000 fine were “far too harsh”.

The FSA has rejected Pattison’s criticisms and says the proposed sanctions are merited.

The case will be heard at the Upper Tribunal. A hearing date is yet to be set.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. How many more of these firms are there?

  2. Any chance that the level of remuneration paid to the adviser on this was “more” than “non UCIS” investments?

  3. It’s Cowboys like this that continue to give the industry a bad name. £90k, it should have been double that!!

  4. 25% of the pot in fees? Outstanding! Give that flogger a prize.

    Trouble is though is that this salesman has probably earned a lot more commission than the level of the fine. Worrying that he has obviously been able to get away with this for years before FSA finally caught him.

  5. Dennis Burling ACII APFS, Chartered Finalcial Plan 12th January 2012 at 7:04 pm

    All sounds very suspucious and money grabbing – for the sums involved I think the fine sounds far too small !!

  6. Teeth and claws out on this one.

    Interestingly they charged fees not commissions and they love those UCIS.

    £9.7m is not a small sum and I would like to know more in regards to the remortgaging objectives i.e. IHT planning etc?

  7. Apparently the UCIS recommended were Arch Cru Private Finance IC Ltd and EEA Life Settlements. I am dismayed that the FSA have not delayed action given the contents of the Report and Financial Statement for the Arch fund (now SPL)fund issued to the Channel Islands Stock Exchange on the 9th August 2011.

    The following is a link to the report,

    http://www.cisx.com/download_news.php?newsID=178817

    Before anybody comments further on this matter I would suggest they read pages 4 and 5 of the report.

    People could also look up the following New Model Adviser article

    Arch faces legal battle over failed Cru funds
    by Jun Merrett on Aug 11, 2011 at 13:11

    which was written immediately following the publication of the report, but pages 4 and 5 of the actual report are even more revealing.

    For some inexplicable reason the FSA do not want to acknowledge the actions detailed in the report or the fact that Arch Financial Products LLP were not only the fund manager for the Guernsey ICC Ltd company but also CAPITA’s delegated fund manager for the CF Arch Cru UK authorised OEIC’s and therefore responsible for CAPITA’s continued investment of the UK authorised OEIC’s funds into the “unregulated” Guernsey ICC Ltd companies.

    The FSA’s ignoring of the report might have something to do with the fact that as CAPITA are the Authorised Corporate Director of the UK OEIC’s then they have legal liability for Arch Financial Product LLP’s actions in the UK.
    So one of the UCIS funds was the Guernsey based Arch cru Private Finance IC Ltd closed ended investment company. A company that CAPITA ended up having over a 75% shareholding in through continuous purchases of shares via the FSA authorised UK based CF Arch Cru OEIC funds

    Very few bloggers seem to understand that just because UCIS are unregulated by the FSA does not mean that all UCIS we are some sort of dodgy back room deal. Indeed Arch cru Private Finance IC Ltd was Authorised and Regulated by the Guernsey Financial Services Commission, a look at the biographies of the 7 Commissioners of the Guernsey Financial Services Commission shows that 3 are currently UK FSA authorised individuals – Lord Howard Flight, Dr Cees Schrauwers and Richard Hobbs.

    If IFA’s cannot trust that funds that have a connection with Guernsey are well run then maybe Margaret Cole of the FSA/FCA would like to make a similar statement to the one she recently made about the life settlement funds and say that any fund with connections to Guernsey are toxic, that should set the cat amongst the pigeons in the fund management world.

    No one without knowing the full facts can make an informed comment about the rights and wrongs regarding the actual advice Pave provided to their clients, but it is not the advice that has caused the underlying problems in the Arch Cru funds and for the FSA to try and divert responsibility for 20,000 investors losses in the FSA UK authorised OEIC version of the funds onto the IFA community is disgraceful, when the real reasons are in the Report and Financial Statement for year ending 31 March 2011 released to the Channel Islands Stock Exchange on the 9th August

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