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.”