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MM leader: FCA needs to get a grip on unauthorised firms

Natalie Holt Peach 250x255

There are many instances where advisers’ woes can be traced back to unregulated investments and/or unauthorised firms. From high profile fraud cases to the recent £20m interim Financial Services Compensation Scheme levy on life and pensions advisers, you do not have to look far to find references to “unauthorised business” or “non-standard assets”.

But despite the untold pain unauthorised firms inflict on investors, the damage they do to advisers’ reputation (and their wallets), and for all the FCA’s talk, the problem is getting worse.

Money Marketing first investigated this issue almost two years ago. Based on a sample of the latest FCA warning notices against unauthorised firms, 42 per cent still had a live website. Now, that figure has risen to 59 per cent.

Granted, the FCA has a mountain to climb. Unauthorised firms may be based overseas, and therefore out of the regulator’s jurisdiction. The scale of the problem means in the time it takes one firm to be shut down, five more appear in its place, like a kind of financial services version of the heads of Hydra.

But as pension freedoms loom, it is imperative the FCA gets a grip on the situation.

A quick Google search, for example, “cashing in my pension pot”, demonstrates the point. While information from the Money Advice Service and The Pensions Advisory Service features highly towards the top of the search listings, your eye is easily distracted by ads emblazoned with headings such as “cash in my pension now”, “read our free guide for advice”, “unlock your frozen pension” and so on. In amongst the noise are misguided headlines around using your pension as a bank account.

So what more can the regulator do? Well for a start, it makes sense to promote consumer risk warnings beyond the FCA’s website. Consumers need to know to go there in the first place, and a wider marketing campaign highlighting the risk of scams would go a long way to warding off consumer detriment down the line.

The industry also has to play a part. Advisers can do their bit, but hopefully clients that understand the value of advice are less likely to be taken in by rogue firms.

Providers can flag the risks as part of their second line of defence communications, and the Pension Wise organisations also have a role. But the FCA needs to take the lead – guidance providers have enough to cover off as it is. And in 45 minutes to boot.

Natalie Holt is editor of Money Marketing


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. A classic example can be found on the following webpage of an estate agent:

  2. Good article Natalie !

    The truth of the matter is, the FCA don’t care, they could have, they should have, been doing this (warning the consumer) since before the implementation of RDR, and the very meagre efforts they are doing now is,…… woefully inadequate, they (FCA) fall back on the knowledge whatever damage un-regulated investments and advice does it will be covered by and large by the regulated and its clients.

    When you hear or read the statement made by George O, that he believes there wont be a risk of miss-selling or wrong advice, he is damn true, there really is no risk, any hint of wrong doing (from any quarter) will be sent to FOS and be paid back by FSCS, then levied against the industry.

    For the consumer, no risk investing, ability to disregard ones own actions, win win scenario !!
    For the regulator, all tied up with a nice red bow, in the FOS and FSCS and justification for themselves for there cost, existence and future security.
    For the financial services industry, more cost, more restrictions, more rules, more bad press
    For the un-regulated ………. happy days, raise a toast for good ole George Osborne !!

  3. A timely article. No doubt prompted by all the new whizzy ideas emanating from No.11.

    But perhaps the regulator would have a smaller mountain to climb – or the Hydra might have less heads – if the daft ideas being dreamt up to trash pensions and annuities in order to raise taxes and spending where cut off at the legs.

    I notice a distinct move from both Regulatory and Government quarters that seem to be backpedalling like mad, now that they start to realise the cockup they have instigated. Sometimes Georgie boy you can be that bit too clever.

  4. Totally agree Melanie!

    They must give more emphasis to policing the border and warn advisers immediately they suspect problems.

    By the way what do I need to do to get to return an email or a call

  5. This is a great article Natalie and as you know I have provided you with information on unauthorised firms for many years such as Harlequin and other firms. It is a constant annoyance that the FCA seem to take no action against unauthorised companies until it is too late and it is not just about enforcement, it is about education which is what MAS was supposedly set up for.

    Money Marketing need to run a constant campaign in order to get better standards within the FCA to crack down on unauthorised firms instead of the FCA hiding behind a wall of secrecy.

    The first thing that should be done is to provide a proper website where the general public can check whether a firm is authorised and regulated since the current website IS NOT FIT FOR PURPOSE:

    1. First off it is too hard to find!

    2. It is not being advertised at all

    3. The search results often do not work

    4. Is it me or has it been designed by somebody who has deliberately tried to create the most complicated results that are difficult for a Lehman to understand?

    This is one of the most important things that needs to be done and in my opinion millions of pounds should be invested in advertising a newly designed register rather than wasting money on MAS.

  6. A good place to start might be to outlaw unregulated investments. Why are such things allowed at all?

  7. The FCA are encouraging you to report dodgy investment schemes, or as they call them ‘scams’.

    I think that all industry professionals can play a part in reporting suspect schemes. The earlier the FCA are aware of a scheme, the higher the chance they can limit the potential damage.

    Report suspect investment schemes at:

  8. @Matthew – One of the problems is that even though we do report things, we rarely if ever see any outcome as a result. We keep a record of the firms we have reported now so that if one does end up headline news, we can check to see who we informed at the F-pack so questions can be asked about what investigations (if any) were made.

  9. @Matthew – It doesn’t help with advisers confidence if the F-pack system when one of the proponents of Life Settlement plans (Dr Debbie Harrison) having completed a glowing report on Key Data’s Life Settlement plans FAILs to make any public comment after it’s collapse and the subsequent reference by Ms Cole @the FSA that ALL Life settlement plans are toxic and she then gets a sinecure as a panel member of the Financial Conduct authorities own FS Consumer Panel. We now have government trying to push the UK equivalent of a Life settlement plan i.e. a secondary market for annuities!

  10. @Matthew Speck
    Have you actually done this yourself? If you have then you will know that the response is generally underwhelming, it takes a significant and material time for anything to happen, and it’s not always clear the person dealing with it understands the issue.

  11. Adding to Phil and Grey Area’s comments Matthew; the truth of it is…. the FCA don’t care, they couldn’t give a damn, if they did they would have been shouting from the roof tops since the inception of RDR !

    RDR in fact was their (FCA’s) shiny new car (if you will), but no they left it in the garage almost embarrassed to take it out ! and with no confidence that the engine that powers it (IFA’s), will get it to the town shops !

    Adding to the woe’s of the industry just keeps them in work and gives them free rein to charge the industry what the hell it likes, so save you time, your breath, your energy, the FCA is not fit for purpose.

  12. This should be a matter for the law not the regulator. Unregulated investments should be covered by legislation not regulation, so any breach of the Trades Description, any fraudulent claims, any unfair contract terms should be prosecuted in a court of law. There should be ZERO levy on the regulated adviser community for such failings, since these are UNregulated investments. As an industry we have allowed ourselves to become the paymasters to fraudsters, protecting consumers against people who have nothing at all to do with us. What a sorry state the UK financial services regulators have created.

  13. I have viewed many programs and reports on the TV over the last few weeks about pension reforms, on Sky, BBC and other channels. In every case there has been very little (one quick sentence) or no mention of regulated advice and how to find it. They point the way to the new pension wise websites (guidance), they show the hardship, they mention regulated products and the FSCS, but nothing about regulated advice and its value. They seem happy to through the consumer to the wolves armed only with very limited understanding.

    It is not just down to the regulator that said, they could change the rules to not cover unregulated investments under any circumstances, but won’t as its not in their interest. The current rules suit their needs as if recommended by a regulated adviser, it gives the FCA, FOS their get out of jail card free.

    The real worry is that many will have seen these TV programs and will not know that the only way to gain one hundred percent protection from scams is to pay for professional advice. Funny thing is stand on a corner and try and give someone money they run away (its to good to be true syndrome), yet believe they are getting value from FREE GUIDANCE.

  14. For me this is the big thing that the regulator should be concentrating on.

    We pay hefty fees to the regulator for the privilege of being able to call ourselves authorised regulated financial advisers. For those fees, which we inevitably have to pass on to our clients, we also purchase protection for our clients through the FSCS and FOS. This promotes a higher level of service from us and provides clients with the reassurance that, should something go wrong, they can claim for loss.

    Unregulated means the opposite, no hefty fees to the regulator, no higher level of service and ultimately no protection for clients should it all go wrong. Can the FCA or FOS, therefore, explain how it is right for the regulated sector to fund the protection of clients in the unregulated sector?

    As Natalie mentioned in her article, the FCA would be better regarded if it spent time promoting the benefits of regulated advice/products and policing the provision of unregulated advice/products. A system should be in place that clearly highlights to the public who they are dealing with, regulated or unregulated advisers. It should also highlight what it means to deal with unregulated advisers, i.e. no protection should it all go wrong. Under no circumstances should we be sent a bill for £20m to cover unregulated advisers and their cock ups.

    Excuse me while I stand in the corner screaming “It’s just not fair!”

    Rant over…………………………………………….for now.

  15. @Nick Wardle it isn’t fair that regulated advisers pay for the errors/mistakes/bad advice/fraudulent behaviour/well intentioned ignorance (delete as applicable) of unregulated advisers. Nor is it relevant for the FCA to police the activity of unregulated advisers. The Department of Trade, Police and legal authorities should police this kind of activity and redress should be via prosecution of the individuals through the courts. It is just plain wrong that qualified regulated advisers pay a single penny towards this kind of unconnected investment/advice. The only time the FCA should police this is if regulated advisers offend by promoting/selling/advising on unsuitable unregulated products. And it is only this kind of offence that has any justification at all for a levy to be raised on regulated advisory firms and individuals.

  16. @Brian Gannon

    I would disagree slightly. I would suggest that the FCA does police regulated and unregulated advice with the difference being that when someone provides unregulated advice the FCA has the ability to take them to task through the criminal court.

    To clarify the FCA should cover all elements of financial advice as regulated and anything they don’t like or refuse to authorise falls into the unregulated sector and therefore not available through advice channels.

  17. hi @Nick, I think we disagree quite strongly on this one. I believe that the FCA is not a good regulator and is already carrying out activities which it is not qualified to do. I believe that too much protection is afforded to customers who seek to go for “investments” which are outside the box. The principle of caveat emptor should apply, and there are laws in place to protect customers buying products and services if they do so in circumstances where fraudulent claims have been made, or where criminal activity is suspected. Not just financial products but any products. Where do you draw the line in letting customers receive a get out of jail card free paid for by regulated advisers? What about a Spanish property marketed within an unregulated collective investment? Its a property so it is more appropriate that estate agents pay for any losses. What about car park spaces in Dubai? Surely NCP should pay for that? NO THEY SHOULDN’T SHOULD THEY so WHY SHOULD WE? The FCA should not be taking advisers to court, they should be regulating. They should not be spending £11mn on staff and new computers which we pay for. The less our regulators are involved and the more their expenditure is controlled the better. Every time you expand the activity of the FCA and PRA you will find they add another £xx million to the adviser levy, because they can do what they want unchecked by Parliament. The regulators have done some very good things and a lot of their activities have led to better quality advice and better products. But the world moves on and I feel they now stretch their tentacles far too far, and I do not wish to carry on bankrolling them.

  18. Perhaps I’m missing something but the FSCS doesn’t cover the failure of unregulated funds/investments or the advice of unregulated advisers. It does cover the failure of regulated advisers who gave advice on unregulated investments but then you would expect that wouldn’t you?

  19. @Brian Gannon
    I apologise, I don’t think I have made myself clear enough. I actually agree with everything you have said regarding caveat emptor etc etc. What I meant was that the FCA should be taking more steps to ensure those that are providing unregulated products to clients get the message across to their prospective clients that they have no protection in the event of investment ‘failure’ or loss of the original investment. The bane of the industry are those hiding behind a mask of regulation and claiming to be professional financial advisers while being nothing of the sort and promoting investments in ‘car parks in Dubai’ or ‘holiday homes in Spain’ etc etc.

    @Grey Area
    Personally I don’t agree with the provision of unregulated investments by regulated advisers. I believe it creates this conflict of interest that most advisers believe screws the balance in favour of the less honest amongst us. In more than 10 years of providing advice I have not yet come across a client that would be comfortable investing within an unregulated investment.

  20. The whole situation in respects to authorisation needs to be addressed as soon as possible as it is clear to me that both the government and the FCA are circumventing clear legislation that states that if you give financial advice you should be authorised and regulated. What is the point of having legislation when so many organisations are allowed to circumvent these rules?

    We now have the introduction of the term guidance which I am afraid is only muddying the water and we even have individuals circumventing authorisation rules by using the journalistic principle opt out when in fact these individuals are clearly commercial entities and not journalists.

    One of these individuals is Martin Lewis who appeared on BBC 5 Live on 30th March 2015 where the presenter Craig Charles introduced him as an expert when in fact he does not hold a single pension and investment qualifications to my knowledge or even an FCA registration for pensions and investments. Is it no wonder why the consumer is confused when such a blatant misrepresentation by the BBC is done on such a regular basis? Yes Martin and the other guests mentioned that consumers should seek independent financial advice but they were also publicising their own illegal websites. Yes I mention the word illegal in my humble opinion because half the information on these websites does not meet the strict standards laid down by the FCA and if a registered financial adviser had such content I think they would find themselves in hot water so why are unregistered websites such as Money Savings Expert allowed such content?

    You cannot regulate one end of the industry without regulating all content and the FCA urgently need to both support authorised advisers by highlighting the benefits of dealing with an authorised financial adviser whilst highlighting the register whilst also closing down firms that flout authorisation rules and marketing rules and that includes well known names.

    Journalistic principle is exactly that; reporting facts on a current story and not being a commercial entity that becomes the story.

  21. hi @Nick. Agreed, but I feel that the FCA is not there to oversee unregulated advisers promoting these products. Totally agree with them being there to monitor the sale of such products by regulated advisers. What is intensely frustrating is that when they fail to carry out such oversight it is us who pay for their failures.

  22. Were it not for the fact that I end up being screwed by the FSCS to pay for losses incurred by investors in rubbish unregulated schemes, I really wouldn’t have much sympathy for them.

    Here we are nearly three decades into regulation and people are STILL putting money into creaky unregulated investment schemes, sucked in by promises of impossible combinations of fantastic returns with negligible risk. Either the FCA and its ancestors have failed dismally to communicate to the public the dangers of unregulated investment schemes or people are too wilfully stupid to heed such warnings.

    But hey ~ the FCA has solved the problem in typical fashion, namely at somebody else’s expense! Just get regulated advisers (most of whom have never touched any unregulated schemes) to cover all investor losses from them.

    And, as ever, APFA appears to be doing nothing about it. Harry Potter and the Chamber of Flatulence comes to mind.

  23. @ Julian – I thought network members didn’t pay FSCS levies directly they paid network fees? As such you should be asking your network and their representative on the APFA council to take the issue up with the F-pack.
    As a directly regulated firm, if I chose to, I could refuse to pay my FSCS or MAS fees to the FCA as “debt collector” and then suffer the consequences of them trying to remove my authorisation. I may yet with MAS fees, I am undecided on that point as yet, however as a network member, you cannot take a principled stance without your network removing your authorisation, which is much easier for them to do than the FCA to remove a firms authorisation.

  24. Julian Stevens 2nd April 2015 at 3:44 pm

    FSCS fees for AR’s of the Tenet network are additional to those of the network itself.

    Were I DA, refusal to pay any levies would be commercial suicide. Hardly a viable option.

  25. @Julian – At some point commercial suicide has to be balanced with standing up for one’s beliefs/ethical stance. I am NOT at that point yet, put may not be far off it and I suspect many advisers are getting near the same tipping point. Brinksmanship/mutual deterrent and playing chicken only work if one is willing to risk the loss. It worked for all the time I was in the Army Reserve (TA) vis a vis the Soviet Union and has stood me in good stead on several occasions personally (I have some chipped teeth as a result). As with Chamberlain, appeasement has it’s limits.

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