A Scottish IFA has called for a full ban on unregulated collective investment schemes, despite the fact they were banned to retail investors by the Financial Conduct Authority last year.
Ucis are now only supposed to be available to high-net worth individuals and sophisticated investors, however, Julie McIntosh, an IFA at Alloa-based Solicitors Financial Services said she believes the problem is more widespread.
Speaking to FTAdviser, Ms McIntosh said that if the regulator just banned Ucis altogether then it would stop unscrupulous behaviour.
She added that the regulator could not say that they were protecting the public whilst simultaneously allowing people to put pensions into property investments that are high risk.
As a consequence, Ms McIntosh has launched a petition calling on the regulator to ban all these schemes.
The petition reads: “There are a huge number of people in the country who have invested their savings or pensions into unregulated investments, often not knowing that they are unregulated. This means that they are not covered by the Financial Services Compensation Scheme if the investments fail or go into administration.
“Thousands of people across the country have lost millions of pounds and often are too embarrassed to come forward about it.
“As the investments are unregulated they can be carried out by people who not only are not regulated, but are generally have no financial qualifications or experience.”
The petition goes on to detail that lots of ‘introducers’ are encouraging people to move their pensions or investments due to the fact they are also paid large commissions, usually between 10 per cent and 20 per cent on their whole investment.
Last year property group Harlequin admitted it paid financial advisers a commission rate of up to 9 per cent, significantly above the 3 to 5 per cent it has consistently stated it pays distributors.
“We need the FCA to stop allowing unregulated collective investments schemes altogether. Pension and investment advice should only be allowed to be carried out by fully qualified financial advisers who are authorised and regulated by the FCA,” the petition says.
Daren O’Brien, director at Aurora Financial Solutions, said he did not believe that independent financial advisers should be recommending unregulated products.
“I do agree [with the principle of the petition] if someone has a regulated pension or regulated investment bond and through that decides to buy an unregulated collective investment scheme [that should not be done].”
However, he added it would be very difficult to remove Ucis altogether from the market. “To ban them in their entirety would be difficult to do - how you’d do that and set that up - it would add to regulator costs.
“There’s a lot of ex-broker consultants who have lost jobs in the recession and they are continuing to sell anything they can to stay in financial services.”
Mr O’Brien added that many left the industry after the Retail Distribution Review and decided they could make more money by acting as a middle man between the IFA and the Ucis.
“We get a couple of calls a day from various types of company of consultants trying to sell unregulated collectives.”
Frances Kemp, an IFA from Nurture Financial Planning, said: “I’m not sure about banning it [Ucis] because it is all about getting the right advice - people should be free to take decisions.”
Justin King, a chartered financial planner at MFP, said that the balance was a difficult one to strike from the regulatory standpoint.
“There’s a fine line between having a total nanny state and restricting innovation and out of innovation comes great stuff. If you regulate everything too heavily it is hard for people to innovate.
“The greatest opportunity we have is giving correct information to the public so that they can make joined up investment decisions.”
ruth.gillbe@ft.com
