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Carl Lamb: Isn’t it time the FCA caught the outlaws?

It is a sad fact that there are still crooks and incompetents out there in our industry creating financial mayhem with their clients’ money.

Just last month we had headlines in our local press about an IFA firm near Norwich. The two principals of the firm were arrested and were being questioned by the police over alleged fraud.

Thousands of pounds were apparently wiped off the values of their clients’ investments and pension funds through high-risk schemes entered into without their knowledge or consent. Reports suggest many of the losses were linked to in-house Contract for Difference investment schemes that went awry.

Tragic as it is for those who have lost their hard-earned savings, I cannot help feeling that the real story is about how – in this post-RDR age of all-encompassing regulation and microscopic supervision – a firm can get away with misconduct on this level? Surely there must have been clues somewhere along the line, such as in its Gabriel reporting, to trigger a light bulb moment down there at the FCA?

The RDR was supposed to rid our industry of the bad guys by imposing new qualification levels and by banishing the hidden costs to clients in commissions from provider to adviser. Transparency and fairness have been our watchwords for several years and I have become proud of our cleaner, leaner industry.

However, I guess any sector will have those who seek to undermine the rules and take advantage of the trust placed in them by their clients. What is important is that there are measures in place to stop them in their tracks before the damage is done – and that is exactly why we have the FCA.

Of course, clients have the reassurance of knowing they are protected if their adviser does not obey the rules. The Financial Services Compensation Scheme and the Financial Ombudsman Service give clients access to compensation and redress but this is at the expense of those of us out there rigorously sticking to the rules. The heartache and stress caused by rogue advisers will take its toll. It would be so much better if any misconduct could be nipped in the bud before real damage is done.

I cannot believe there were no clues in the reports submitted to the FCA by the firm in question. Surely it must have recorded the high-risk investments it had recommended to clients and its suitability reporting must have been flawed if it was recommending those products to clients without their understanding of what was involved.

Something is clearly wrong if a firm can still defraud its clients in this way without detection. If the current systems are unable to spot this type of activity, then those systems need changing. We have to make sure that people are protected from the mean, the greedy and the downright criminal members of our industry. The FCA is the appointed sheriff: it needs to find a way to get on its horse, catch the outlaws and put them behind bars.

Carl Lamb is managing director of Almary Green


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There are 16 comments at the moment, we would love to hear your opinion too.

  1. This assumes that the Gabriel returns are accurate.

    RDR was never going to get rid of the rogues. Having qualifications proves nothing about an individual’s morals it just hopefully reduces the risks of genuine mistakes being made.

    All industries have rogues including bankers, solicitors, accountants, MP’s, civil servants etc. and no matter how hard you try they will always exist – its called human nature.

  2. I think this is just a case of financial advice moving in line with mainstream financial services (banking and accountancy) where persistent abuse of customers and unethical and illegal activity is a regular occurrence – so regular it must be condoned by policymakers and regulators alike. The rationale presumably being that as long as compensation is paid to end clients, the benefits to the industry participants (and the support they give to policymakers and regulators in the form of hard cash and career prospects) outweighs the detrimental effect suffered. Either that or the policymakers and regulators are fantastically stupid and really bad at their jobs.

  3. Thats all very well but those crooks committed to defrauding their clients for their own benefitare just as likely to defraud the FCA in respect of the facts recorded in their Gabriel returns…

  4. Carl you ask some very important questions and highlight some very important issues…..answered very simply the regulator, is and has been very backward thinking and very retrospective in its approach to regulation, the train has already left the station (if you will).

    Now to combat this, it regulates the industry with a iron fist, which in turn strangles the life out of the good, and as we know the bad just carry on, even when caught it takes an age to bring them to book and by this time they mostly morph into something else and pay nothing for their crime or incompetence !!

    The FSCS and FOS you mention are very dangerous to have, as it gives the regulator the opportunity to lean on this to good effect, in reality, it knows when things do go wrong, its the industry (and its clients) that is held accountable and pay the fines (sorry levies) so what incentive is there (really) for them to alter the status quo ? none if you think about it !

    You see in short its not in their (FCA’s) interest to tackle the real issues………… most of what we do is a waste on time, in regards to reporting and dare I say compliance as its just doesn’t and wont work, is all just smoke and mirrors so the FCA can turn round and say; look we have put in place strict measures and guidelines for the industry to follow and its still being corrupt and unruly,

    People outside the industry often say we get the regulator we deserve, I dispute this as total rubbish, as its the regulator who gets the industry “it” deserves !!! why ? as it restricts and bogs down the good and allows the bad to flourish !!!

  5. Trevor Harrington 26th January 2016 at 1:42 pm

    Afternoon Carl,

    I hear you, and so indeed do most other Advisers, particularly those who have been around for a decade or more. We have all been asking the regulator to do what you are asking for many years.

    The “problem advisers” usually fall into one of two categories :-
    1) They themselves are completely ignorant and naive about the risks involved with many investments – classically good examples would be precipice bonds or so called guaranteed income bonds, or property schemes.
    2) Those who are simply looking for the best earner for themselves, with scant or no regard for the risks that they are subjecting clients money to, let alone the benefits. Many such Adviser practices exist today – an example might be those who unilaterally moved virtually all clients investments into SIPPS where the client had no intention whatsoever of managing their own money, and simply used the SIPP as a platform for fund selection, or simply because the SIPP enabled them to take a larger AMC for themselves.

    Indeed, in the case of the second example, most of the current crop of Adviser purchasers and consolidators are doing the same – moving clients from 0.5% pa annum to at least 1.0% pa adviser fees, for no apparent difference in asset management style or substance.

    If the FCA would care to lose a few administrators and employ a few ex-advisers with reasonable experience, they can look at any adviser’s “day book” on a month by month basis and pick out the suspect transactions at a simple glance – then enquiries and closer file inspections can be made.

    The trouble is that the FCA will need to be clear in their minds (as indeed we Professional Advisers are) as to what exactly is a suspect transaction and what is not.

    • Trevor, I disagree with you on your second example a wee bit, For myself I have increased my 0.5% upwards in line with the massive increased costs and levies that my company has to pay, its now pushing 0.8% and due to increase this year again in light of what we are due to pay this year !

      Has my service proposition increased …… No ! but the demands from the regulator and FSCS has, so this just has to be met by the clients !

  6. Sadly rogues will exist in all walks of life & clearly the financial services world has its fair share. No amount of data gathering will stop those intent on fraudulent activities.
    That said, surely the regulator should adopt a more proactive approach in trying to identify firms & individuals that peddle rubbish unauthorised investments which subsequently fail & drop liabilities on the rest of us?
    A simple question on RMAR “how many unregulated investments has the firm arranged in the reporting period?” would easily help to identify dodgy sales practices. By no means a perfect & complete solution, but a start……
    Where is the desire within the regulator??

  7. Adviser firms are very ‘nose to the ground’ on this type of thing and if the FCA were to engage us in a more amenable fashion (we can spot a dodgy advertisement/scheme a mile off!), the outcome for all could be improved. I have reported two firms activities/products in the last year, without any acknowledgement as to matters. As far as I know, my complaint/concern, call it what you may, just hit the bin.

    A bit of feedback of any nature would lay to rest some of the concerns and avoid some of the finger wagging. If they treat us on a need to know basis, then when things go wrong what are we likely to think?

  8. Even if there were clues in the reports submitted to the FCA by the firm/s in question, it’s a racing certainty that the FCA never examines the content of the GABRIEL returns, hence they go completely unnoticed. This what John Griffith-Jones describes as pragmatic regulation. A completely pointless waste of time ~ one of the FCA’s specialities.

  9. I often wonder how many customers are likely to need or understand these exotic products.

  10. Trevor Harrington 27th January 2016 at 10:26 am

    Morning DH,

    To me, it seems to be pretty obvious that where an existing Adviser is working with their existing clients, and finds it necessary to increase their charges, then that is a commercial decision. Also, the compliance requirements would necessitate a clear and unambiguous written explanation to the clients concerned, which will give them the opportunity to stay or go – these are commercial and marketing issues.

    Don’t forget that where the ongoing fee is a percentage of a fund, we are already getting automatic fee increases as the client’s funds grow in value.

    The function that I believe is outside of the above description is where an acquisitive Adviser practice (A), buys another practice (B) and simply doubles (or more) the ongoing adviser fee from 0.5%pa to 1.0%pa, with little or no warning to the clients concerned. This seems to be done simply to fund Adviser A for the original purchase of Adviser B.

    From what I can tell this sort of increase happens on a “default basis” where the notification of the increased ongoing adviser fee is buried deep in the other literature telling the client about the take-over of B by A, and that the client is not required to positively agree to it by signature – it happens automatically.

    Once again, we have a substantial fee / commission being buried in complex literature which the client does not read, let alone understand the relevance of.

    I have advocated for many years (since the 1980s – well before hard disclosure) that such commissions and fees should be declared very much more clearly, and on the front page of any such accompanying literature or illustration.

    Also, in my opinion, where a fee increase is being deducted from a product by an increase of the percentage, such as the ones that we are discussing, client signatures should be required as it is a fundamental change of contract. This should apply to all financial services, including those provided by the banks.

    • Morning Trevor

      Yes I agree entirely, but I wanted to make a point that there is also the “commercial decision” of “having” no choice but to increase or charges to meet regulatory (cost) demands forced upon us. Its not good advisers turning bad, its business owners forced into a corner.

      You also say

      “Don’t forget that where the ongoing fee is a percentage of a fund, we are already getting automatic fee increases as the client’s funds grow in value”.

      They also go down as well ! so added incentive to make sure you do your best for the client

      Couldn’t agree more on the disclosure bit !! I’ve said it before, I couldn’t give a toss what your remuneration is called (commission, fee retainer or invoice) it really makes no difference, but you and the client need to know exactly, down to the last penny where and what they are paying for, that is “full” disclosure, take KFD’s as an example in its current form you can hide a sackful of sins in them, at most these should be and could quite simply be 1/2 pages !

      Having some hypothetical illustration of “what” you may or may not get back if this or that happens…… well i think the technical term is B;;;;”ks

      But then that’s regulation for you !

  11. I sympathise with you Trevor and another thing that concerns me is the way firms feel that FUM and ongoing commission (adviser charges) are important. The focus on practice buyout is perhaps influencing the advice given and certainly has in the past. Annuities or drawdown? I can see the attraction of drawdown – ongoing reviews, funds under management etc.

  12. Trevor Harrington 27th January 2016 at 1:21 pm

    So … here we have three of the most experienced and outspoken Advisers in the profession resolving a fundamental regulatory problem which the regulator has wrestled with since the creation of regulation 27 years ago in 1988.

    I would like to think that the Regulator, and / or the government, and / or the Treasury Select Committee might read, understand, and then act accordingly …. by bringing our knowledge and experience into the processes at the FCA ….

    …. but then I live in the real World …. on the other hand … surprise me …

  13. IMO, projections have a role in comparing the overall cost of advice. Clearly they do not show what WILL happen. Past performance is also only an indication.

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