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.