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FSA bans and fines IFA £60k

The FSA has banned and fined P3 Wealth Management director Patrick O’Donnell £60,000 for advising clients to invest in unregulated collective investment schemes and other non-mainstream investments when they were not suitable.

The FSA says O’Donnell did not understand the regulatory restrictions on the promotion of Ucis and failed to promote these schemes compliantly.

O’Donnell has been banned from performing any function in relation to any regulated activity in the financial services industry.

The regulator found that O’Donnell failed to adequately assess whether non-mainstream investments were suitable for his clients and whether his clients were eligible to receive promotions for Ucis under the FSA’s restrictions.

O’Donnell advised many of his customers to invest almost all of their wealth in one or more illiquid, complex and higher risk investments.

As a result of his advice, a fork-lift driver and his wife invested the entirety of their known pension funds into Ucis. He also advised a mother earning a small salary and supporting a dependent son to invest 93 per cent of her known pension into Ucis.

In total, O’Donnell advised 57 of his clients to invest, 14 of whom also invested in other non-mainstream investments. From a sample of 15 clients, the FSA found that around two thirds of O’ Donnell’s customers invested over 75 per cent of their known pension funds into Ucis and other non-mainstream investments.

Following a visit, the FSA asked O’Donnell to stop selling Ucis. Despite being fully aware of the FSA’s concerns, O’Donnell permitted £185,306 of Ucis business to be completed just four days before he confirmed to the FSA that he would stop selling these products.

Even after he had confirmed this, O’Donnell nonetheless completed Ucis investment applications on behalf of two of his customers.

Although Ucis are not regulated schemes, their promotion and sale is subject to FSA rules. Authorised firms carrying on regulated activities in relation to Ucis, such as giving a personal recommendation to invest in them, are subject to FSA regulation.

FSA head of retail enforcement Tom Spender says: “O’Donnell had absolutely no understanding of the regulatory restrictions in place which prohibit advisers from selling Ucis to the vast majority of UK retail investors. He also completely failed to make recommendations that were suitable for his clients’ individual needs and circumstances.

“Such mis-advice cannot continue. Ucis and other non-mainstream investments are very often high risk, complex products, which are not appropriate for most retail investors. We will continue to intervene where we find misselling.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Good work from the FSA, credit where credit is due.

  2. I find this absolutely incredible in that an adviser not only advises and sells these products without any knowledge of how they work and continues to do so after a visit by the FSA and the warnings he was given. These are the type of advisers who bring down the integrity of all advisers. Good riddance to him.

  3. man on the moon 30th May 2012 at 11:29 am

    You just may find that the Regulator was investigating this for quite some time before this final action.

    Interesting that the FSA state that Mr O’Donnell may have genuinely believed he was doing the right thing.

  4. I wonder how long it’s going to be before the FSA starts to look into advisers who are selling Caribbean homes within SIPPs which I think is totally and utterly wrong, as it could potentially be deemed as an unauthorised payment resulting in a 55% tax charge.

  5. Donna Wolfenden 30th May 2012 at 11:37 am

    I cannot believe this type of thing goes on !!!!!!

  6. Duncan, I don’t find it incredible that this guy didn’t understand the product and carried on selling it, he probably made alot of money but lost more than he made.
    Being ethical and honest is not a choice issue, it is essential.
    If you don’t understand a product, don’t sell it.

    Many years ago, I was approached by Beale Dobie to sell their traded endowment geared plan. What a lot of nonsense the rep told me, a simple calculation showed that the plan could not work due to the effects on the profits of the gearing loan.

    Integrity GTEP was the same sort of rubbish.

    It’s not the advisers I want out of the industry, it is the unscrupulous product designers and providers who want us to sell their rubbish products.

    A Prudent, cautious and lower risk to capital approach, should precede any product research and eliminate the badly designed complex products that are so often misrepresented as low risk.

    Gone are the days when higher risk equalled potentially higher returns

  7. man on the moon 30th May 2012 at 4:05 pm

    @Anon
    Fractional ownership of carribean holiday property is another one ripe for the plucking.

  8. I find it difficult to understand how, after more than 25 years of regulation, an adviser can operate in such a way. I am not talking honesty or integrity, merely fundamental competence in protecting one’s backside. The basics of advice and regulation must be known, or one would imagine so.
    I can understand the occurrence of fraud, and even greed. But there have been a number of cases like this were the business behaviour appears to be little more than mind numbingly stupid. Mr O’Donnell may have earned a little more from these products than more conventional investments, but surely not so much more that it justifies one jeopardising one’s business. The cause appears to be a total lack of knowledge.
    The question that springs to mind therefore is whether the retail advice industry as a whole is operating in an atmosphere that either tolerates or accepts such basic incompetence? It is not as though not having all your eggs in one basket is a new concept.
    The FSA can discipline breaches, but it really takes peer pressure to ensure wide spread acceptance of basic standards of competence and professionalism. From ad hoc comments that I have heard over recent years I am not convinced that such a attitude yet pervades the industry.
    Nor is it obvious that providers, at all levels, buy into professionalism. One can be both professional and commercial. Many providers appear to be merely greedy. There are too many products that are designed to enhance the coffers of the providers at the expense of the consumer rather than in conjunction with the consumer.
    If the FSA have to carry the full weight of the fight to improve standards it is understandable that they may turn out to be extremely heavy handed. Advisers should be exerting their own moral pressures on industry standards. And that should include public exposure of providers and products that do not meet basic standards and, if required, public boycotts. That would be something for the media to get their teeth into. Firstly it puts pressure on the recipient of the pressure to improve their standards, and secondly, it is a public demonstration of the professionalism of advisers that they take the job seriously. And that exerts a pressure on fellow advisers to act accordingly. There is nothing like peer pressure to improve standards.
    I note that man on the moon comments on a product category, but this will be seen by too few advisers and even less consumers. There needs to be a more dedicated site for such issues, and greater clarity of the problem. Not only does that highlight an area of concern but should also instructs others about the factors to investigate. Practical education is an easy and effective means of improving standards – especially if an adviser cannot be certain that the customer may know more about the product than the adviser. An incentive to learn.

  9. man on the moon 1st June 2012 at 9:25 am

    @Glen McK

    I can only refer you to my first comment and note the regulator was aware and has acted. In regards to ‘peer pressure’ , I am unsure how this works when there will always be competing interests.

    re my second post – ‘fractional ownership’ is not the only ‘intriguing’ one that I have come across over the last few years. The worst one was for a small Drawdown pot post PCLS to be invested in funds based in the W’Indies that invest in Asian hotel groups. Genuinely could not figure out how a £50k fund would benefit. But then it was ‘truly diversified’ from the markets. Mea Culpa.

  10. The sad facts is that the majority of advisers will do things for commissions.

    CF Arch Cru – 100% uplift in renewals. Offers to buy their practices.

    Of course, those inducements had nothing to do with the sales.

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