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Topics: FSA| Succession Advisory Services| UCIS
The compliance industry is out of step with the FSA over how to assess clients’ attitude to risk, exposing advisers to unnecessary enforcement action, IFA consolidator Succession warns.
Ian Shipway, Succession’s financial planning director, says advisers are trusting their livelihoods to a compliance industry with an approach that lags far behind the regulator’s.
He says his company regularly sees firms in which a compliance officer has judged advice as suitable based solely on clients’ sensitivity to volatility, without factoring in their capacity for loss.
The FSA issued guidance in February warning advisers against using a similar practice when recommending products.
To give suitable advice, IFAs must assess the risk a customer is “willing and able to take”, the regulator said, adding firms must not rely solely on volatility as a proxy for risk.
Shipway says: “The compliance industry in general has developed a one-dimensional view of risk. This is not right and it won’t fulfil the FSA’s requirements.”
Dale Thornley, partner at compliancy services firm ALIFA and compliance officer at IFA PK Financial, says compliance officers based in IFA firms are generally forced to take more responsibility for getting things right than travelling compliance consultants.
“Compliance consultants for hire do not have to be regulated or authorised yet are giving advice to those who are, then they move on,” he says.
Investment advisers are likely to face greater regulatory scrutiny of their compliance systems in the coming months, after a warning from super-regulator the Financial Stability Board (FSB).
It alerted national regulators, including the FSA, to signs low interest rates have encouraged investors to hunt yield in riskier products.
With the current UK base rate at a historic low of just 0.5%, it is likely the FSA will be on the look-out for potential problems as investors try to beat inflation of 4%.
The FSA will want to avoid a repeat of the Keydata debacle, in which investors lost hundreds of millions of pounds, and which cost advisers £93m in FSCS levies this year.
Before its collapse in 2009, Keydata attracted investors because it offered products with 7.7% returns at a time when the Bank of England had cut interest rates from 7% to about 5.5%.
Shipway says many of the IFAs censured for mis-selling Keydata products, and more recently unregulated collective investment schemes (UCIS), to low risk clients are paying for misplaced confidence in their compliance officers.
“In the historic view of things Keydata would have looked low volatility and low risk. But it had phenomenal underlying risks which could decimate an investor’s capital.
“Potential investors may well have had a low tolerance to risk but they also needed a high capacity for risk – to be able to lose all the money they put in.”
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With due respect to Mr Shipway and his firm I am often struck by the number of articles in media outlets such as this that purport to be news when really they are just soft advertising. There is a fine line between one and another. There is so much bluster purporting to be news that basically is either just scaremongering or out and out advert for a service or firm. One is lead to ask onself when the ASA may get involved in such matters but then again that is just another hornet's nest.
Posted by: Geoff Pollock
I agree - what a load of nonsense!
In my experience it was the Compliance Officer recommending that clients money was not invested with Keydata or the like but the advisers weren't listening - perhaps because of the high rates of commission being paid????
Posted by: Compliance Officer
Succession warns.....
Auick retort to Mr Compliance Officer who reckons that KeyData products were sold for the high commission payments. Should you really be a compliance officier with such a tainted view of those you serve. KeyData products paid 3% (sometimes 2.5%) up front with no trail. Less than unit trusts and less than insurance bonds. Why don't you let us know who you are and IFAs can make their own mind up as to whether they would wish to employ you in the future !
Posted by: Bill Wells
Succession warns.......
Since when do we have a compliance INDUSTRY ? Forgive me when I am unable to think of anything which is INVENTED, MANUFACTURED or PRODUCED by those people and organizations engaged in compliance with regulations and other arbitrary procedures.
Posted by: Bill Wells
no need to panic
I think we can all take this with a very big pinch of salt….after all what do Succession know about compliance? Getting advisers to restrict their fund choice to only those that pay into a central pot for the benefit of Succession is about as far removed from good compliance as you can get! Ian, save the lecture for your own board room. Compliance professionals have recommending the use of good investment processes to their IFA clients for years and advocate the use of proper independent systems to help discuss attitude to risk and asset allocation strategies. Compliance professionals understand the FSA requirements and ensure the firms they serve have access to the tools and systems they need. You should try working with some good compliance professionals and then you will understand how advanced many of them are in their approach.
Posted by: Matt
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what a load of rubbish
do your homework when you post an article like this. The firm I work for take the welfare of their advisers seriously, to safeguard new business entering the company. Having said that the quality has to be right and this is monitored through a robust T+C regime. The compliance people you have come into contact are not the norm across the industry - wake up and get a life - I have been a compliance professional for many many years and I live for my company and my advisers - we will be here post RDR - will you
Posted by: compliance professional