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How did the FSCS look for ‘advice’ in the London Capital & Finance case?

New documents have revealed how the Financial Services Compensation Scheme determined if “advice” was given to investors in the case of collapsed firm London Capital and Finance.

The FSCS noted that “advice does not necessarily mean that a personal recommendation – such as ‘you should invest’ or ‘I recommend that you invest’ was made”.

The lifeboat fund added: “However, there needs to be more than just the provision of information for it to count as advice.”

Last week, the FSCS concluded that some investors did receive advice from LC&F, after several months of investigation in cooperation with the administrators and the FCA.

Within its investigation, which launched in January, the FSCS asked investors to describe “information or advice” they received from the representatives of LC&F or digital marketing company Surge Financial, and whether it influenced their decision.

The FSCS said:

Examples of information or advice that may have influenced your decision to invest might include:

  • comments on the pros and cons
  • comments on merits of the investment, such as assurances over the security of the underlying assets of the bonds themselves
  • comments/value judgments on the quality of the investment (e.g. ‘this is an excellent product offering a fantastic rate of return’).

LC&F defaulted in January, leaving over 11,500 investors with a total loss of £237m. After a big volume of claim queries, the FSCS issued a statement on its website on 6 March, which said it will not accept claims against the firm.

However, administrators, at Smith and Williamson, highlighted in their report from the end of March that some LC&F representatives – who were otherwise trained not to provide investment advice – may have given advice in some instances.

The process included listening to calls between the LC&F representatives and the investors.

Last week, the FSCS  confirmed that some investors could be due redress after it concluded advice was provided in some cases.

The investigation is ongoing.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. John Stirling 2nd July 2019 at 1:54 pm

    Deciding that advice was given where an entity is not authorised for the provision of advice is very dangerous territory. Under what circumstances can a claim be refused now as there is no way of stopping a nefarious individual from ‘giving advice’ and being covered.

    This then absolves investors from the quite frankly painful process of paying attention to the investments they might make, and gives free reign to the market place to be as corrupt as it likes – with the only brake on the race to the bottom being the sanctions that apply to bad actors, through either the FCA (not exactly fast to act against non regulated firms or individuals, although get there in the end sometimes) or the Police (don’t like fraud, it’s complicated).

    This could genuinely be the start of the dam breaking. It is a high enough profile case that lessons will be learned, by the wrong people.

    If I leave my door unlocked and I am robbed – it is not my responsibility for being robbed – but it is my responsibility to take enough precautions to minimise my risk of being robbed. Society determined that it is reasonable for people to take enough care of their possessions that they should not simply be compensated for being robbed. Indeed if I want compensation at all I need to purchase insurance.

    Investors should be educated to check that ‘advice’ (including salesmanship) is regulated if they require protection. Society does not ask them to purchase separate insurance, but it should ask and expect investors to apply some reasonable level of diligence to the investments they make.

  2. Graham Ponting 2nd July 2019 at 4:16 pm

    Hear, hear John Sterling – caveat emptor!

  3. Indeed if you were insured against theft and didn’t take sufficient precautions (left door unlocked etc) then the claim would be refused.

    One of the Problems with this case of that the FCA did give LCF authorisation and they had the FCA logo on all material. And this may have led investors to believe it was ok.

    I am however having difficulty with LCF and Surge apparently giving ‘advice’ with no authority at all. There needs to serious sanctions (proper fines, confiscation of assets, prison) to deter others.

    I fear however the FCA will cover their moral and political embarrassment by offloading the compensation into the FSCS – under the convenient ‘intermediation’ block. So we get to pay the compensation.

    Great.

  4. Are we entitled to request sight of the evidence they have to support a claim for advice?

    This needs proper scrutiny.

  5. “The FSCS said:
    Examples of information or advice that may have influenced your decision to invest might include:
    – comments on the pros and cons
    – comments on merits of the investment, such as assurances over the security of the underlying assets of the bonds themselves
    – comments/value judgments on the quality of the investment (e.g. ‘this is an excellent product offering a fantastic rate of return’).”

    If those actions represent ‘advice’ then just about every journalist commenting in the personal finance pages of the press/media will be deemed as having ‘given advice’.

    The FSCS is muddying the waters as to what qualifies as advice, and sending out completely the wrong message. Which isn’t helpful to the public. And certainly isn’t helpful for the actual regulated adviser community.
    [I’d echo everything that John Stirling said, too.]

  6. The FSCS shouldn’t be paying compensation if it isn’t covered via FSCS. if advice was given when individuals are not authorised that should be a civil matter and probably a police matter too. The flood gates will open. I also believe consumers need to carry out due diligence and check FSCS cover. “Buyer beware“

  7. Julian Stevens 3rd July 2019 at 8:57 am

    EVERYONE who invested with LC&F will claim they received advice. How will the FSCS prove that many of them didn’t?

  8. You know the saying……

    If it walks like a duck …..

    This albatross (soon to be around our necks) does a bloody good impression !

  9. Examples of information or advice that may have influenced your decision to invest might include:

    Comments on the pros and cons
    Comments on merits of the investment, such as assurances over the security of the underlying assets of the bonds themselves
    Comments/value judgments on the quality of the investment (e.g. ‘this is an excellent product offering a fantastic rate of return’).

    I am struggling with this please help me. None of the above seems to me anything like a personal recommendation or advice.

    It does sound a lot like information or guidance though

    • Basic definition of personal recommendation
      from PERG 8.30B.2G, 23/02/2018

      A personal recommendation means a recommendation that:
      (1) is made to a person in their capacity as:
      (a) an investor or potential investor; or

      (b) agent for an investor or a potential investor;

      (2) is for the person in (1) to do any of the following (whether as principal or agent):
      (a) buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security, a structured deposit or a relevant investment; or

      (b) exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment;

      (3) is:
      (a) presented as suitable for the person to whom it is made; or

      (b) based on a consideration of the circumstances of that person; and

      (4) is not issued exclusively to the public.

      Simples…

  10. Stating that this constitutes advice gives the advice sector a bill they shouldn’t have, but it’s an easy fix/dereliction of responsibility, as stated.

    There are 2 entities to blame for this costly debacle and one is LC&F!

  11. So if an unregulated individual working for a non-regulated firm, who is appointed to do marketing for a regulated firm says “this Bond is suitable for someone seeking an 8% return”, this is advice according to the FSCS?

    This is a stitch up of the grandest scale.

    Did the FCA put pressure on the FSCS to push this through when the heat from the TSC began? Could a FOI request reveal the communications between the two?

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