As FSA spokesman for the probe into the extent to which IFAs trust providers' marketing material, Rob McIvor says the buck stops with the adviser. So that's it then, case closed, throw away the keys, we are obviously all guilty for believing that what we read is true.
But is that a fair basis on which to convict us, if the claims turn out to be untrue? In its rush to exterminate the IFA sector with the obvious glee of the anti-hunting lobby, should the FSA not also consider whether the product providers which actually publish the offending material should take some of the blame?
If Twisted Life, an FSA-regulated company, promotes a plan saying the punter is guaranteed to get 10 per cent income a year provided the Nosedive index does not at any point fall by 20 per cent from its starting value within the next six years – but if it does he will lose his shirt – I might reasonably be expected to point out to a member of the public that this is probably not a sensible home for his money, based on the past volatility of the Nosedive and his ability to sustain financial loss.
However, it is surely the responsibility of the FSA and possibly the Advertising Standards Agency to say that the amount the hapless punter hopes to receive each year is more accurately called a return of his own capital.
I know I am old-fashioned but my definition of investment income is something you earn on your capital, not something your take from it. If the FSA applied a simple rule that you could only call something income if it left your capital intact, in the same way as I believe the Inland Revenue does, I suspect a lot of unhappy people would have wisely left their wallets in their pockets a mite longer.
Split-capital investment trusts are another contentious area where I believe the FSA is barking loudly up the wrong tree, which I will illustrate by way of an example. I have a client who was advised by his previous IFA to buy a split-cap from Prolific. It did very well and achieved its objectives. The client was unfortunately so satisfied with it that, when it matured and he received a covering letter along with a full 76-page prospectus direct from Aberdeen, by then his Pep plan manager, recommending that he roll over the funds into another of its split-caps, he followed what he believed to be its advice.
He lost the lot and when he complained to Aberdeen and the Financial Ombudsman Service, they deemed that the letter he had received was “only” some marketing literature and that, because it contained the magic phrase: “If you require financial advice, please contact your usual financial adviser or contact Aberdeen's customer service helpline ”, they were off the hook because, although he had not contacted anyone else, believing the letter he had received from Aberdeen covered enough detail, he could have.
Does any IFA fantasise that they would not have had the full wrath of the FSA on their neck if they had tried a similar stunt?
Except in hindsight, how many IFAs did not have faith that the amount being offered as a transfer value by the scheme actuary was fair or the projected growth rate endorsed by the FSA on an endowment was realistic?
How many actuaries have been convicted of acting in bad faith while the FSA seems to persist in blaming almost the entire failings of the financial services sector on the adviser?
When Ford had problems with some of its cars, it was Ford and the tyre manufacturer which were liable, not the dealers who sold the cars.
Twisted Life should be liable for the claims in its marketing material, not the reader for failing to divine that they may not be true in all circumstances.
Michael Both is proprietor of Michael Philips