The Financial Ombudsman Service has reported an increase in unregulated collective investment scheme complaints since the Financial Conduct Authority restricted their promotion last January.
For over a year now they can only be advised and promoted to ‘sophisticated’ and ‘high net worth’ investors, with the aim being to reduce the likelihood that they will be sold to ordinary ‘retail’ consumers.
“These rule changes seem to have alerted some investors to review their existing arrangements - and to question the advice they were previously given,” stated the Fos in its latest update.
It warned that when returns on conventional savings are low, the high returns promised by exotic investment schemes may sound particularly appealing, but if something goes wrong, the consequences can be “extremely serious”.
The Fos addressed the fact that many have been confused over whether or not it can look at complaints about Ucis, because by definition they are unregulated.
“But while the schemes themselves are unregulated, the actual advice given by businesses is often regulated - and so covered by us. The fact that someone may appear to be an experienced investor doesn’t automatically mean they’re eligible to have Ucis promoted to them.”
The Fos explained that in many complaints, people say they were not made aware of the risks involved or that they did not know what exactly they were investing in.
“If a complaint is referred to us, we investigate whether the business carried out the checks required at the time they gave the advice to invest, we’ll also look at key sale documents from the time.
“Where we decide that advice to invest in a Ucis wasn’t suitable in the particular circumstances, we usually tell the business to put their customer in the position they would be in if they hadn’t received that advice.”
It added that what this looks like in practice will depend on the individual circumstances of each case, but will involve considering the consumer’s attitude to risk, their existing assets, investment experience and objectives.
Just last week, an individual was sentenced to six years and nine months imprisonment for his involvement in operating a Ucis through three land banking companies, in which over 110 investors lost at least £4.3m.
Earlier this year, FTAdviser revealed Lighthouse Adviser Services was contesting dozens of claims brought through Fos relating to more than £5m worth of unregulated investment schemes sold by a single adviser, who alleged the fault lay with network compliance.
In December a Scottish IFA called for a full ban on Ucis, arguing 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.
peter.walker@ft.com
