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The UCIS advice failings of a media IFA

The FSA has warned advisers about the suitability of unregulated collective investment schemes after exposing the advice failings of the latest firm to be sanctioned over UCIS sales.

Former directors of Best Advice Financial Planning Paul Banfield and Anthony Moss were banned yesterday from holding any significant influence function.

Banfield, a well known media IFA whose broadcast experience includes commentary for the BBC and Channel 4, was also fined £10,500 and banned from being an investment adviser.

The FSA visited Best Advice in February and March 2009, prompting an investigation into Banfield’s and Moss’ conduct in July 2009.

The regulator found no evidence to demonstrate that Best Advice had complied with UCIS promotion rules.

Under section 238 of the Financial Services and Markets Act, UCIS cannot be promoted to the public by authorised firms unless the scheme is an authorised unit trust scheme, a scheme constituted by an authorised open ended investment company, a recognised scheme, or falls under other exemption rules.

The FSA identified at least 22 customers who were advised by Best Advice to invest in one UCIS or more. Banfield was the adviser in 13 of the 22 cases reviewed.

The final notice against Banfield cites three cases which demonstrate the failings in Banfield’s advice.

In two out of three of the cases, clients were advised to invest 80 per cent of their funds in UCIS, one of whom was an 87-year-old woman. In the third case clients were advised to invest 70 per cent of their funds in UCIS.

In the case involving the 87-year-old,  referred to as Mrs A, Banfield recommended that existing investments should be encashed and reinvested in several UCIS through an offshore investment bond. Mrs A’s inheritance tax planning requirements were to be met through a discounted gift trust. Banfield advised Mrs A to encash her investments before the provider had agreed to underwrite the client for the DGT. The application for the DGT was then rejected.

The costs and charges of the transactions were over £65,000. The FSA says given Mrs A’s age, it is unlikely these costs would ever have been recouped.

Best Advice went into liquidation on August 2009, and was declared in default by the Financial Services Compensation Scheme in July 2010.

The FSCS has received a total of 31 claims against Best Advice to date. It has paid out a total of £250,000 on nine claims. Nine claims have been rejected, with a further 13 still to be decided.

FSA head of retail enforcement Tom Spender says: “UCIS are rarely suitable for retail investors. Many are characterised by a high degree of volatility, illiquidity or both – and are therefore usually regarded as speculative investments. Even when they are recommended they are unsuitable for anything more than a small share of a portfolio.

“We want firms to read the details of this case, along with the findings of our review and other recent publications on UCIS, and learn from them. We have seen a proliferation of firms offering UCIS so it is absolutely vital they do their homework before recommending these schemes to investors.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. I don’t understand how P.I. insurance works, surely the firm had cover when it made the recommendations, so why is the FSCS picking up the cost (and passing on to proper IFAs)? I should maybe try and find out as it sounds like a good business to be in (pick up premiums but never pay claims). any enlightenment gratefully received.

  2. Good example where people like Paul Banfield and Anthony Moss should be banned for life.

    This is what the regulator should be doing. Identify crooks and ban them for life. In this case one should have definitely been sent to jail as well.

  3. PI insurance works on a ‘claims made’ basis which means that the policy you claim on is the one in place when you are AWARE of a potential claim, not when the actual event happened that lead to a claim.

    However that policy has to be continuous.

    For example lets say that you have a policy with X during which time something happens that would lead to a claim but you are unaware of.

    You then switch to a policy with Y and then later on become aware of a potential claim against you for the previous event.

    In theory you should claim on your policy with Y because of that was when you were aware of the claim. However in likelihood Y wont pay because they will say the actual event occuured before they were your insurer.

    Your policy with X wont pay because they will say that the although the event occurred while they were your insurer you werent aware of it until after the policy had expired.

    This then leaves you personally liable – so you might say what is the point of PI insurance!

    In addition if you work for an unscrupulous network who provide your insurance they may terminate your contract when they become aware of a potential claim but before any action is taken against you to avoid you claiming on the insurance the network covered you with.

    The only way around this is to have ‘run off’ insurance which basically covers you for things that happened in the past but that you are not aware of yet. This is very expensive.

    In the above case the chances are that although there was PI insurance in place at the time there wasnt when the circumstances came to light hence the personal liability of the advisors (or their company).

    In addition a third party cannot usually force a claim on someone elses insurance. So even if action on these advisors (by the FSA, FOS or legal action) were to succeed they cannot be forced to claim on their insurance even if they had a policy that covered it – they may chose to wind up the company or declare personal bankruptcy.

    It is a huge issue for the FSA in the IFA world because having PI insurance means absolutely nothing unless you are forced to have continuous cover (ie if you move insurers the new insurers assume liability for previous events) and should you leave the industry you are forced to have run-off cover.

    Equally if you are covered by network policy they should be forced to replicate the above ie assume liability for events before you joined the network that you are unaware of an provide run-off cover should you leave them and the industry.

    The FSA have no regulations in place to force this to happen and refuse to impliment any. This exposes the individual IFA to personal liability should mis-selling or bad advice or even fraud be proved against them (and Im sure most arent aware of that) and preventing the clients who are the victims of the wrongdoing from recovering much if any of their funds.

    Hope that helps.

  4. Sorry, I know this isn’t a chat room, but that really helps – perfectly put.

    Thank you.

    Sadly (for my pocket) my morality will probably prevent me from a froay into the PI market.

  5. What were the qualifications of the people who made these unsuitable recommendations (which I don’t dispute for a minute)? Were the recommendations unsuitable as a result of any lack of technical knowledge?

    It looks very much like they were driven simply by commission greed. Assuming that to be the case, pre-sale CAR, particularly if subject to the assent of a younger relative of the elderly client/s in question, would almost certainly have halted the proposals in their tracks (which is why, for investments at least, I broadly support that element of the RDR proposals).

  6. I just realised Paul Banfield sold investment to us, and 70 – 80% was this PI Insurance – They told me that I can not even cash this in now.
    What Can I do??? Can anybody help me?

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