MM leader: Interesting twist to provider suitability role


The FCA and its predecessor have long banged the drum about the importance of due diligence and assessing suitability. Industry insiders tell Money Marketing the regulator will be scrutinising the retail investment advice market closely when it carries out its thematic review into due diligence later this year.

So it is interesting that the controversial Financial Ombudsman Service ruling against Sipp provider Berkeley Burke seems to blur the lines about what role, if any, a provider should assume in examining whether investments are right for particular clients.

No doubt from Berkeley Burke’s point of view, this is an open-and-shut case. The investor paid more than £24,000 to Sustainable AgroEnergy, an unregulated investment, after being introduced by an unregulated agent. The client also signed to say he understood the high-risk nature of the investment and he was not given advice.

But the FOS disagreed, arguing the provider’s responsibility extended to establishing whether the investment was suitable. The FOS is now reviewing the final decision after Berkeley Burke brought a judicial review. This is the first case of its kind where the ombudsman has gone back on a final decision outside the legal process.

The case raises interesting questions, not least what the point is of investors signing declarations to say they understand the risks of investing only for them to bring
a complaint to the FOS further down the line. The principle of caveat emptor has never been more sullied.

The fact that the main elements of the product chain were unregulated seems to have done little to stop the complaint from ending up at the FOS’s door.  In this case, the FOS has gone after the only regulated entity it can.

Whatever the outcome of the review, having to go back on a final decision is a PR nightmare for the FOS. If it upholds its original ruling, it opens a whole new world of provider responsibility, which could end up limiting investor choice too much the other way and presenting more complaints to the FOS.  

Meanwhile, a U-turn would represent an embarrassing climbdown and risk opening the floodgates on judicial reviews when complaints do not go a firm or consumer’s way.

One final point to note: for the case to get to this stage, the complainant had to agree to a review. The motivation for the investor to do this is open to question but clearly advisers and providers have an interest in this decision and in its impact on future investment recommendations. 

Natalie Holt is editor of Money Marketing – follow her on Twitter here



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Very good article Natalie !

    And one that needs to be addressed by the regulator, we heard Martin Wheatley at the TSC hearing and elsewhere give his full backing and support for guidance, simplified advice / non advice through its innovate team.
    Then FOS ruling against on the provider for facilitating this ?

    Yet on the other hand strangling the advice market to its last breath over suitability and due diligence ? don’t get me wrong this is just good sense.

    My question how can you do both ? especially with FOS in the room

    He bemoans the industry for not being innovative, and reaching for legal assistance whenever the FCA call,
    He even admits the rule book is un-fathomable as he states new entrants are baby walked through it.

    We need to have a level playing field, with a fair and just ref, not 4; each with the power to bend interpretation to suit the outcome of the game

  2. Why do we allow unregulated advisers and investments to be made so accessible to the public? Surely, with no regulation, these advisers are pretty much able to say whatever they want to a client in order to get a signature on the dotted line.

    Why doesn’t the FCA make all financial advice regulated? On top of that why don’t they actively authorise financial products and promote the fact that they do this? Surely once they start doing this they will be able to move clients away from the unregulated cowboys or even fine and prosecute them out of existence if they aren’t giving clients the correct warnings about what is and isn’t a regulated financial product and what that means in terms of potential redress etc.

    Just my humble opinion.

  3. The FCA is not answerable to parliament. Hence they are able to make rules and regulations in the knowledge that parliament can question but not alter the FCA’s decisions. Where else in the business world would there be a principle where innocent parties have to pay for other people’s mistakes? Where else in the business world does a written contract mean so little? If unregulated advisers are not governed by the FCA then surely compensation and redress for any fraudulent or misleading actions on their part should be financed by those same unregulated advisers, and if necessary the taxpayer? If they are found to act fraudulently then it should be a criminal matter, and if they fail to meet their reduced obligations they should be fined and disbarred. As they are not part of the regulated adviser community it seems against natural justice that we should have to pay for the sins of others.

  4. The FOS appears to start from the standpoint that the consumer/complainant is always right yet when a consumer is allowed to make a decision – foolhardy or otherwise – the adviser can expect to be lambasted for facilitating this or ignoring him.

    A not too dissimilar case is currently being considered by an Ombudsman and this will also result in a Judicial Review if the adviser is deemed guilty.

    Let’s consider, are consumers so intrinsically stupid that they cannot be entrusted with making their own decisions? If so, how does this sit with the regulatory utopia of online direct to consumer offerings.

    Forget simplified advice we need simplified regulation.

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