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Martin Bamford: High-risk advisers are a scourge on our industry

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Last Saturday evening at the annual village bonfire, two local families decide this is a suitable event at which to continue their petty feud and start a punch-up. The following morning at the Remembrance Day service, a young chap unhappy with the temporary road closure decides to rev his engine loudly and drown out a moving reading from our Reverend.

Everywhere you go there appears to be a minority intent on spoiling things for the rest of us. Indeed, I was reminded of these instances last week when reading about the pair of financial advisers flogging £400m worth of investments, including £100m of film scheme investments, to some high-profile footballers.

Leaving aside for one moment the fact many footballers appear to be better at playing investment victims than playing the beautiful game, this seems to be another all-too-familiar case of stupidity at play – on both sides of the pitch.

According to the report, the two advisers pocketed around £5m in commissions from this handy little scheme. In a subsequent move, which only appears to have been a surprise to the advisers involved and their clients, HMRC stepped in and demanded repayment of the tax rebates generated by the “investments”.

This story has all of the hallmarks of a tale about how not to invest money. It has got the suckers, the high commission payments and the dodgy underlying investments. I particularly liked the sound of the property yacht berths in Florida without waterside access. Classic.

It also has the investors borrowing money to invest. No doubt lending the scheme some extra credibility, as well as some extra money, Coutts got involved with £40m of loans to boost the amount eventually lost.

All of us know what is going to happen next. Because the advisers involved were authorised and regulated, and because they have wound up their businesses before seeking reauthorisation elsewhere, the liabilities get dumped on the Financial Services Compensation Scheme. Which is to say the liabilities will get dumped on the rest of us.

Local hooligans and financial advisers who sell high-risk investments before forcing us to compensate their clients have a lot in common. Both are a scourge to their respective societies. Both tend to get dealt with by the appropriate authorities. Street brawlers might mature in time or end up serving time at Her Majesty’s pleasure. Rogue advisers tend to end up at firms with stricter compliance regimes or have their permissions revoked for life by the FCA.

Yet before long another boy racer will come along to fill the void left by the last one. Another financial adviser with more greed, naivety or supposed intelligence than the rest of us will come along to advise the next group of overpaid footballers wanting to avoid their fair share of tax. When this happens, society will once again pay the price through inconvenience, offence or a large FSCS levy. So the cycle continues.

Where I once wanted to see decisive action from our regulator to deal proactively with this sort of nonsense, I now find myself resigned to making provision for the inevitable costs in our retained profits and simply shelling out for it when it keeps happening.

Martin Bamford is managing director at Informed Choice

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Trevor Harrington 24th November 2015 at 5:16 pm

    One footballer put £200,000 into the scheme.
    He immediately got a tax rebate of £400,000 from HMR&C …. yes … you do read this correctly!

    In the process, he signed papers which showed the £200,000 investment, for which he presumably wrote out a personal cheque. The same papers showed the £800,000 loan application, and the £800,000 further investment application, and of course the footballer banked the cheque from HMR&C for £400,000.

    Now then …. what sort of idiot thinks that this idiot (the footballer) might be due some compensation?

    Please tell me that our regulator, and the Ombudsman, and the Investors compensation scheme people do in fact have enough intelligence between them …. to tell the said footballer … to go forth and multiply !!

  2. Never merely resign yourself Martin. Keep speaking these truths – as vociferously and eloquently as you have. Without this regularly repeated message from as many quarters as possible, change is far less likely to occur.

  3. Of course the sale of high risk unregulated investments are the scourge of our industry, Martin. That’s why we have regulation…. isn’t it? The trouble is, of course, that we don’t. The regulator, whilst claiming to regulate advice on unregulated products and schemes, if not the products and schemes themselves, only ever does so AFTER those products and schemes have come apart at the seams and plunged to earth in flames. At this point, the regulated entities who flogged them realise they had no PII cover to do so, they find themselves swiftly engulfed by the first couple of complaints and thus fold, leaving the rest of us to pick up the tab by way of the FSCS. Despite the FCA’s perennial denials, this is regulation by hindsight.

    Before all this happens, the regulator has made no effort to find out whether these firms were advising on/selling products and schemes for which they had no PII (a fundamental regulatory breach is that not?) because it doesn’t examine the contents of any of its useless GABRIEL Returns. These are just another pointless bureaucratic burden on practitioners to enable the FCA to claim that it’s monitoring the activities of the firms it regulates when in fact it has NFI what most are doing, at least not in any detail. Most of the DA firms to whose principals I’ve spoken say they fudge their GABRIEL Returns just to get the wretched totals to tally so that the FCA’s infernal machine will accept them and leave them alone for another year. They could be selling any old toxic garbage but, provided the machine accepts their inputs, that’s all that matters. And that’s JG-J’s idea of pragmatism on the part of a regulator that couldn’t regulate a wine tasting day at a vineyard.

  4. Agreed. But there isn’t a damn thing anyone can do about it. As an owner of DA firms for three years having previously been in a network and as an ex adviser for a bank, I know that unless you have a third party paying your income but only after the paperwork has been checked for validity, you will not stop these advisers from flying by the seat of their pants and letting the rest of us pick up the pieces if things go wrong.

    Some of these cotton brained footballers /celebs are simply spurred on by greed, naivety and boredom as to what to do with their surplus money.

    Maybe we should have American Judge Judy as the head of FOS / FSCS. Can you imagine her rulings. You did what? How stupid are you? You invested in a golf course using white balls in the Arctic? Where is your common sense? Get out of my court, case dismissed. (see youtube for examples)

  5. Good article Martin, well put!

  6. Aren’t computers marvelous.
    I am reminded of the days when many did not like the business register going electronic until it was realized it was even easier to fudge data e.g.inputted in non chronological order when previously it was much harder to do on paper format.
    Progress I suppose.

  7. Then there was an old area manager who told me – don’t shut screen down and complete details in the car that way head office don’t realize it was completed without client. It was all quite daft really but stupid rules mean people find ways round them and no one was being harmed by it but I just hated being dishonest when it was not necessary in the first place. I resented compliance for it turning me into a cheat when it was the only way I could complete the work and get out of the poor clients house!! Sometimes I had already been there 2 hours.

  8. From my reading these schemes were legal and exploited loopholes. Then legislation was changed and applied retrospectively. If that is the case it is alarming. When new investment tax breaks are introduced by politicians the least one could expect is that the loopholes are removed before introducing the schemes, not after. In my reading I have also noted that many who invested in these schemes were not footballers. They came in handy for the headlines. Finally, one thing these advisers insist on was that their clients fully understood the investment risks. So without having checked client files why rush to judgement?

    • No, that’s not how it works. The promoters thought they had found a loophole. They had not. They told the mugs that HMRC hadn’t told them they couldn’t do this so clearly it was OK. What they meant was that HMRC hadn’t caught up with them yet. Now HMRC has.

  9. Your photograph gives the impression you are younger in years than myself.
    Whilst youth does not instantly imply naivety it tends to reveal an essence of innocence not often found in the old & crusty who have been around the clock.
    Welcome to the real world Matthew.
    Get used to it.

  10. The annoying thing is that those advisers selling dodgy products simply go elsewhere and start again. Surely if the regulator wants to stop this sort or practice then it needs to ensure that the advisers who’ve caused these problems are stopped from working in the industry again.

  11. In what other industry would this madness exist?

  12. It was reported in the FT June 22, 2014 that the retrospective nature of the new rules had been attacked by the Treasury select committee, the Law Society and the Chartered Institute of Taxation. It is not a clear cut issue at all and other IFAs who have not accessed the client files should suspend their judgement on the IFAs involved. The original articles about footballers in the Sunday Times were very careful to give the advisers’ side of the arguments. The investment plans themselves were shrouded in complex accounting practices and some of the best brains in the accounting world had checked them out before launching them. As I implied above, the retrospective application of legislation could be an infringement of human rights and I’m not sure we’ve heard the last of this.

    • I wont ‘suspend my judgement’ on anyone who recommends investment into plans which are ‘shrouded in complex accounting practices’ designed to circumnavigate taxation for the super wealthy whilst earning £millions in commission and completly fainilng to cover thier own liabilities.

      I’m not a mug.

      • You have obviously not followed this story. Sucked in by the headline story and footballers. Lots of people invested in these plans who were not super rich. Like ISAs and pensions and VCTs etc, they were designed to avoid tax within the rules at the time.

  13. If you want to build a house you need planning permission and the build is overseen by building regulations.

    If you want to set up a multi million pound investment which is in effect smoke and mirrors it appears you can go a head and do it with no regulator involvement.

    The regulator should be involved in regulating and authorising all products before they hit the market but instead they leave it to the genuine adviser population to do that work for them leaving gaps in the framework for the dodgepots to slip through.

    If the product shows a regulator stamp of approval then this will demonstrate to prospective clients it is an industry and HMRC approved product, if not then it’s a scam.

  14. Apart from the use of retrospective legislation which could fall foul of human rights law, there is also the sickening issue of abusive public attacks on celebrities who invested in these tax efficient schemes.

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