The other day I found myself talking with friends about how it is that people get suckered in by scams. I mentioned a recent story on a supposed gold mining company where investors were sent Facebook feeds with video and photo updates showing developments at the mining project. As it turns out, the companies behind the scheme were unauthorised firms with no ownership rights of the site, no machinery, and no government permissions to carry out mining. Over 130 investors paid £1.5m into the scheme over six months.
The issue of unauthorised or unregulated firms and the investment schemes they offer to the investing public has a number of material implications for advisers.
At the investment level, even if a scheme is unregulated but the adviser who sells it is regulated, investors can still claim against their adviser. Firms know this painful fact all too well as it means those investors gain access to the Financial Ombudsman Service, and, if the original adviser goes bust, the Financial Services Compensation Scheme – the very things investors should have been precluded from by virtue of investing in an unregulated product.
At the firm level, redress may not be available from unauthorised firms, but that is not to say regulated advisers are hurt any less in the process.
The never-ending sprawl of firms purporting to offer “advice” – typically these days as a scam to gain access to pension savings – not only tarnishes legitimate advisers with the same brush. It can also drive up costs through FCA fees, as the regulator ramps up its budget to deliver on its core objective of consumer protection.
This is why it is frustrating to see the FCA, while not strictly powerless, rendered pretty much ineffective in its battle to cope with the unauthorised threat.
Money Marketing has carried out painstaking research over a three-year period and despite slight fluctuations the message is the same – unauthorised firms continue to be promoted to consumers long after the FCA has warned against dealing with them.
Burying warnings about unauthorised firms on the FCA website, a place consumers may not even know exists, does not cut it in this world of ever-sophisticated scams post-pension freedoms. The advice profession has several ideas on how to make this warning system work better for all concerned. The FCA now needs to listen.
Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM