Financial advisers have a “key role” to play in preventing pensions scams and investment fraud, leading sector figures say, as clients find themselves increasingly targeted since the pension freedoms.
According to Government figures published last month, consumers have lost £43m in pension fraud in the last three years. The Government has said it will introduce legislation to ban pension cold calls — but there are concerns that the implementation of any such ban could be delayed thanks to a crowded parliamentary timetable.
Many in the industry have also expressed concerns that even if this ban comes into force it will do little to deter more determined fraudsters. As a result advisers may need to do more to protect consumers.
Personal Investment Management and Financial Advice Association deputy chief executive John Barrass says: “This is a difficult area. Banning cold calling might do some good but it is unfortunately relatively easy to circumvent.”
For example, this Information Commissioner’s Office won’t have the power to fine overseas firm, and the rules allow firms to make cold-calls — or send unsolicited text and emails – to customers they already have a relationship with.
Barrass says most of these scams concern what the FCA call non-mainstream pooled investments, and he calls for the FCA to tighten the rules on how these investments are promoted.
Personal Finance Society chief executive Keith Richards says advisers are already playing a key role in alerting authorities to bogus investment schemes.
Several adviser networks contacted by Money Marketing said they worked with members to circulate information about any potential scams.
Ricahrds says: “Advisers regularly come across potential scams as they will more quickly recognise them ahead of unsuspecting consumers and can play a role in protection the public from this growing scourge on society – which also risks denting confidence in savings an investment more broadly.”
Many of these NPMI’s invest in illiquid, unregulated assets and may purport to offer high or guaranteed returns.
Richards points out that scams often look legitimate, and as fraudsters don’t have to comply with regulation, these companies can seem easier to deal with.
He says the PFS is already working with the FCA on this issue and has more recently partnered with the Jersey Financial Services Commission. Many of these NMPI’s were funds based in the Channel Islands or other offshore locations.
Barrass adds: “If advisers are concerned about any investment scheme they should alert the FCA as the more information gathered means the more effectively they can act. We work a great deal with the FCA, the City of London Police and the National Crime Agency.”
How advisers can educate
Barrass says advisers have a valuable role to play in education the public about potential scams. Pimfa has partnered with the FCA for its ScamSmart campaign, and has set up dedicated pages on its website about investment fraud and boiler room scams.
Hargreaves Lansdown senior pensions analyst Nathan Long says a ban on unsolicited calls won’t stop fraudsters contacting consumers, but it may help raise awareness among the public about pension scams.
“More people may simply hang up as a result” he says. “Hopefully it will help people realise that these calls are unlikely to be from reputable companies.”
Although the regulator has limited abilities to fine unregulated companies it does try to warn consumers about potential scams through its main website.
The FCA recently stepped up its warning about advisory firms using unregulated introducer firms to generate leads. This is often done by cold calling customers, offering a ‘free’ pension review. The FCA said it was “very concerned” about the increase in the cases they have seen. Such practices would be outlawed by any forthcoming cold-call ban.
The FCA warned advisory firms that if customer were given unsuitable advice or misleading information by this introducer then the authorised firm may be held responsible for this and subject to regulatory action.
The FCA urged advisers who have been approached by introducers to report this to them.
The FCA says it could not say whether it had seen an increase in IFAs reporting this activity since it first issued this alert, or how many scams were reported by IFAs. However it is understood that the IFA sector continues to be a valuable source of information about potential problems in this sector.
The Finance Bill, which is due to be moved to the House of Commons today following the recess contains proposals to stop fraudsters setting up bogus pension schemes.
However, the Government said legislation to ban unsolicited pension calls and texts would be brought forward when parliamentary time allowed. This lack of an exact date has raised fears that it may be another year before this appears on the statute books.