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Kim North: Stakes are too high to gamble on Ucis


I have been sent thousands of mailings over the years promoting unregulated collective investment schemes, ranging from South American ostrich farms to student accommodation in Newcastle and care homes in Bournemouth.

Some offers are attractive, while others make the hairs rise on the back of my neck as the inherent risk is so high. I believe any investment that is not regulated should not be promoted by financial advisers to clients in this modern era of clear and transparent disclosure.

The regulator has now got its teeth into the sale of Ucis, and a simple search on the Money Marketing website reveals that one adviser was fined £350,000 for promoting unregulated investments to retail investors.

In this case, 800 people between them invested £30m in unregulated property investments in Croatia, Bulgaria and Montenegro that subsequently failed. The Financial Services Compensation Scheme will inevitably pick up some of the investors’ losses and this will be paid for indirectly by other advisers. This, in my mind, is unfair.

Why must the entire sector bail out the clients of greedy advisers who are hunting down high commissions from unregulated schemes? Advisers can choose from over 5,000 regulated investments to match a client’s risk profile. Even Nest has exposure to emerging markets through its default Retirement Date Funds, although this makes me nervous as the unadvised tend not to understand the volatility and risk inherent in emerging markets. 

One thing that is certain is the demand for Sipps will increase from next year as those at retirement delay drawing down their retirement fund and instead invest their uncrystallised savings.

The capital adequacy rules for Sipps have been announced and will apply from September 2016. There is to be a capital surcharge made if non-standard assets are held within the Sipp. The list of standard investments can be  found on the FCA website.

UK commercial property (which can be realised and sold within 30 days) is to be a recognised asset class when held within a Sipp, having been omitted from the list of standard assets in the initial consultation. I welcome this inclusion as analysts are very upbeat about UK commercial property investment.

Meanwhile, Gary Barlow was advised in 2012 to invest in a tax avoidance scheme with other Take That band members. They invested close to £26m in a scheme run by Icebreaker Management. HMRC said: “We do not accept the Icebreaker tax avoidance schemes have the tax effects their promoters claim.” The Icebreaker fund is still available and is marketed as an LLP with a £200,000 minimum investment and offers competitive introductory commissions to IFAs and professional advisers.

My advice to all financial advisers is to check the regulatory status of all investments and get a second opinion on the tax treatment if necessary. If the product or commission seems too good to be true, making incorrect recommendations could result in the end of your advisory business and the loss of your client’s money.

Kim North is managing director at Technology and Technical



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. All regulated intermediary firms are required by the FCA to have PI insurance and it is therefore illegal to trade without it. Yet, oddly, having got their PII policy in place, there appears to be no regulatory oversight of whether firms are advising on investments, such as unregulated ones, that may not actually be covered by it.

    Shouldn’t the FCA stipulate that not only must regulated firms have in place appropriate PII but that selling investments not covered by it is a regulatory breach almost equal to having no PII at all?

    Does this not highlight (yet again) the defective design of the FCA’s cursed RMA Returns and/or call into question just what it does with the data they contain (anecdotally, extremely little)? What does Griffiths-Jones mean when he describes their purpose as “pragmatic”? Of just what actual flipping use are they if the regulator doesn’t bother to check what’s in them?

    As a member of a network, I’ve never had to tackle one (though many people report them to be an extremely irksome chore complete). Do they not ask what types of business a firm is transacting? And, if they do, might not one reasonably expect any mention of non-regulated or potentially high risk business to trigger a request from the regulator for the firm in question to submit proof that their PII policy does actually cover them for it? And, if such proof cannot be supplied, would not the firm in question be committing a breach of its regulatory permissions?

    It seems so straightforward yet, as so often………..

  2. @Julian – Putting the UCIS issue to one side for a moment and to clarify your misunderstanding with PII. It is quite possible for a firm to have PII cover at the time the business is written and then for many years later only to find that due to an F-pack overreaction, PII insurers decide not to cover a business line in the future. As such, it can then mean that business written 10 years earlier is no longer covered by the PII. If no complaints have come in, then you can’t exactly quantify a risk and work out what level of extra capital adequacy to cover. A prime example of this was with structured products and also with Keydata, where at PI renewal, cover for advice related to firms/products which had become insolvent etc was excluded.

  3. Wording inserted after the banking crisis by most PI insurers –
    Professional Liability limitations and exclusions – This insured section excludes and does not cover any claims, liability, loss, costs or expenses ……
    Insolvency – arising out of or relating directly or indirectly to the insolvency or bankruptcy of the insured or of any insurance company, building society, bank, investment manager, stockbroker, or any other business, firm or company with whom the insured has arranged directly or indirectly any insurances, investments or deposits.

    You can see from this Julian why when the FSCS decided that Keydata was an intermediary rather than a provider, where clients complained about the product and NOT the advice, the FSCS trying to pursue the adviser for product failure was NOT going to result in the PI paying out and the maximum they could get of a firm would be the liquid element of their capital adequacy funds.

  4. It does seem perverse, not to mention flagrantly unjust, that a PI policy may provide cover for advice on a particular class of business at the time it’s written but then unilaterally remove it in respect of any claims for that advice that may arise at a later date, possibly years down the line. Hence the widely held view that PII is all but useless. The insurers gladly take your money now but, at the first whiff of trouble in the future, leave you high and dry.

  5. At OP

    The RMAR requires the person completing it to be open and honest in the answers it provides. There is a specific section dedicated to PII and questions 6 & 7 ask;

    6. Amount of additional capital required for increased excess(es) (where applicable, total amount for all policies)
    7. Total amount of additional own funds required for policy exclusion(s)

    The excess levels depend on turnover to allow firms with greater turnover, additional capacity to pay higher excesses than the standard of £5000. If the excess is above the firm’s maximum requirement, or it has exclusions for certain types of business, then the firm has to hold additional capital. For excluded business, it is down to the firm to calculate a sensible figure based upon the amount of business written.

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