IFAs and their clients have been let down on split-caps.
Zero-dividend preference shares were classified as low risk and income shares as low to medium risk.
This classification is clearly written on key features documents approved by the regulator.
We pay the regulator around £30m a year and we have every right to expect it to be accountable and to be able to trust its risk classifications.
Accordingly, IFAs retailed these products to lower-risk investors. While they accepted that their capital was not guaranteed, both clients and advisers had a right to expect the classification to be valid.
If a client loses 95 per cent of their money in nine months, the product was clearly higher-risk than stated.
Clients have been devastated by the extent of their losses and I feel they are justified in feeling wronged.
I have a feeling that this will be blamed on the financial advisers – the press are already encouraging complaints in our direction.
We took it on the chin with pension misselling – and rightly so – but not this time. We have properly documented files, proper risk warnings and products clearly risk-rated and approved by the regulator.
I believe that the clients should be compensated – and also the advisers.
The regulator is keen for us to be paid on a fee basis yet it would be entirely wrong to charge clients for the workload this matter has necessitated.
There is also the issue of reputation. Clients and advisers' businesses have suffered as a direct result of the misclassification of these products. This time others must pay.
I understand that a review is in progress but it is clear the error lies between the regulator and product providers.
I would ask that the regulator makes it clear that an adviser selling a regulated product classified as low risk on a key features document to a low-risk client can not be accused of misselling. This will hopefully stem what is sure to be a flood of complaints.
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