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Nick Bamford: Advisers damaged by endless stream of scams

Nick Bamford MM 700

Like you, I get dozens of emails each day where the obvious action is to hit the delete button. This morning, however, I received an email that caught my eye. Here is part of the (unedited) content:

“I read on the internet that your company is active as a fund and investment company. Our company has a mandate to sell wind and photovoltaic projects in Romania (over 2.300 megawatt), return on equity between 15 and 18 per cent. We are looking for investors.”

I fully understand that there will be legitimate organisations seeking to raise equity capital. However, this does not seem to me to be the way to go about it. What I am most conscious of are the scams taking place currently. It got me thinking about a horrible experience one of my clients is going through.

He has been sold a pile of Ucis rubbish and stands to lose a significant part of his wealth as a result. More worrying is this rubbish has been sold to him by an authorised and regulated adviser, and I suspect the rest of us are going to have to pay for it via a future Financial Services Compensation Scheme levy.

It is almost as if it has become mandatory for advisers to sell Ucis products to people simply because they are so-called high-net-worth/sophisticated investors.

My client expressed the situation succinctly when he said: “These schemes are simply a device for turning my money into someone else’s money”. Indeed, I could not have put it better myself.

He has two property “investments”: one in a German nursing home and one in a German shopping mall. Both are entirely illiquid and worth a lot less than was initially invested. He also has an investment in an energy scheme based in Poland that looks like the one thing that is missing is any energy.

Furthermore, he was advised to make a futile investment in a new business venture of a relative of his adviser, which is now, perhaps unsurprisingly, worth nothing at all.

To top this all off he was also advised to invest in another collective investment scheme, the purpose of which was to identify and raise from the seabed sunken galleons containing treasure. I kid you not.

This man is not a stupid one by any stretch. He trusted his adviser and was with him for many years. He always thought the adviser was working in his best interests. Unfortunately, it turned out that could not have been further from the truth.

Why, when there are so many authorised and regulated funds with total transparency, are UK consumers still being sold these illiquid, opaque funds? As advisers, we all want to be trusted. However, every step forward achieved by doing something good is negated by five steps back when a consumer is “scammed” by these kinds of investment schemes. When, if ever, will it stop?

Nick Bamford is executive director at Informed Choice

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. I have a client that was advised by his previous IFA to transfer in to a SIPP at the age of 60 and then invest 50% in to Australian Farm Land and the rest in to 5 american viatical life policies. His circumstances changed and he needs the money out, but of course the investments are all illiquid. The IFA has since Phoenixed the company leaving the FSCS to sort out the mess, compensate the people he ripped off and then charge the bill to the dwindling pool of remaining IFAs.

  2. The regulator needs to get ahead of this – and sooner rather than later for once please.
    I know they are reluctant but it’s time to step up, show some b*lls and start down the path of product licensing.

    As Nick correctly observes, there is a huge array of products whose structures have been shown, over many years, to be broadly reliable and I suspect that most sensible advisers are able to satisfy the vast majority of their clients’ needs from within this universe.

    So, it’s about time the FCA drew some lines of demarcation between products that fit into this category and those of a thoroughly less well tested variety. The former can be given some form of ‘kitemark’ and the rest can be given an ‘enter at your own peril – because the FSCS won’t help you in here’ warning stamped boldly across the front of the brochure.

    Personally, I am inclined to think that advisers who are stretching their hands down into the more ‘doubtful’ investment buckets are doing so because they or their clients (or both) suffer from excessive greed. Otherwise, why even go there?

    I have no problem with people wanting to dabble in such madness but they ought to know that it’s their money and (for the advisers) their business that’s at risk.
    What I do have a (massive) problem with however, is the morally offensive expectation that other, more principled, advisers should, via their FSCS levies, pick up the tab for these excesses.

    As Peter Lynch once remarked “Never invest in any idea you can’t illustrate with a crayon”.

  3. Totally agree with you Nick…. But I cannot really believe that he didn’t have any inkling that investing in this stuff wasn’t at the high end of high risk. UCIS should not form part of independent “test” and should only be arranged by those able and willing to take a dedicated specialist qualification.

  4. If the client was aware that he was investing in a scheme “to identify and raise from the seabed sunken galleons containing treasure”, surely he would have been aware that there was the possibility that the sunken galleons may not be found (or indeed be there at all) or that if found, there might be no treasure on board or if there was, it might be difficult/more costly than anticipated to bring said treasure to the surface etc. etc. I assume from what has been said that the worst of these various possible outcomes occurred in practise and that the client lost most/all of his money as a result. Doubtless, if the scheme had been successful the client would have been handsomely rewarded and been entirely happy with the investment as a result. Are you sure that this isn’t simply a case of sour grapes rather than necessarily being the result of poor advice?

  5. Yes indeed Nick

    And they want to slacken off parts of regulation in the FAMR – are they mad?

  6. German nursing homes and a shopping mall? An energy scheme in Poland? Sunken galleons? Did it not occur to the client that “investments” of that type are about a mile off-piste and therefore pushing at the upper limit of 10/10 on the risk scale? What kind of gullible fool is he?

    And how can the FSA/FCA have been completely oblivious to the fact that an authorised/ regulated individual was peddling such junk? Once again, it makes a complete mockery of the RMA Returns, not least their format, because the regulator appears to make no effort whatsoever to analyse their content or to establish whether the firm selling them has relevant PII cover to do so. How simple would it be for the FCA to require RI’s to declare whether or not they’ve sold any non-mainstream investments and, if they have, for them to supply full details and proof of relevant PII? Dead simple. If this kind of information isn’t sought and examined, of what value are all the rest of the data that firms are required to collate and submit? It’s just another pointless regulatory imposition that serves no practical purpose at all. A waste of time and money, so cursedly typical of so much of what the FCA does. Amongst much else, the FCA should be required to explain and justify to Parliament the purpose of the RMA Returns and what it does with the data they contain. As things presently stand, the answers to both those questions appears to be damn-all.

  7. @ Paul Storrie a very good question and some good points. I am absolutely sure this isn’t simply about the investment return, but about the suitability of the recommendations. The money we are talking about came out of mainstream authorised and regulated collective investment schemes that formed part of his SIPP and were “re-directed” into the described arrangements.
    He trusted his adviser to be acting in his best interests it’s abundantly clear that trust was abused. We as a profession are struggling with this question of trust and the truth is you and I are damaged by this kind of investment behaviour.
    My point about the recommended investment in searching for sunken treasure is to describe the extent to which these totally non-conventional investments are intruding on sensible investment strategy and I believe convincing just a few advisers that they have to be excessively different in their investment recommendations. Almost as if they believe this makes them cleverer than the mainstream adviser.
    I absolutely believe that consumers have a duty to understand their investment portfolio at every level but many can be seduced by the glossy brochure and the compelling patter of the investment adviser.
    You are probably correct, had there been a positive investment outcome this would have been a non-story except I am sure you and I as professional advisers would still have been convinced the recommended investments were not suitable.

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