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IFAs have been warned of sales practices by some providers of unregulated collective investment schemes (UCIS) who are wrongly telling advisers they must recommend their products to remain independent.
Tony Sanchez, director at alternative investment consultants Clara Capital, said providers have started telling IFAs unless they recommend their schemes the FSA will consider them restricted post RDR.
Philippa Gee, principal of Philippa Gee Wealth Management, said a sales representative pitched her a UCIS invested in bridging loan finance recently using this tactic. She said he told her the widened definition of whole of market post-2012 means she must include the high-risk schemes in all fact-finds.
But FSA policy paper 10/6 Distribution of retail investments states if a firm concludes certain products, “such as structured products or unregulated collective investment schemes, are not suitable for its clients, it will not then need to review the market for that product for each client”.
The FSA has banned the promotion of UCIS to the general public and IFAs face enforcement action if they recommend them for anyone outside the regulator’s tight definition of suitably sophisticated investors.
However, some IFAs now feel under pressure to recommend UCIS to show they are complying with the RDR’s broader definition of independence, Gee said.
“Those scared of losing their independent status are confusing the requirement to consider UCIS with the misunderstanding that they must recommend them.”
An FSA crackdown on advice around UCIS, which led to several advisers being banned and fined, has left IFAs wary of the schemes.
But Gee said the Connaught Asset Management representative gave the impression she was the only adviser not recommending UCIS.
“The sales rep’s biggest claim was how many other IFAs were using UCIS. But this ‘cash alternative’ Income fund had just three years track record, a factsheet without much detail and a comparison to six months deposit accounts. It was very concerning, and so the shortest meeting I have ever had,” she said.
Matt Bedding, managing director at Connaught Administration Services, said he could not comment on any alleged conversation without knowing the context or further details.
But he said: “My interpretation is for an IFA to be truly independent for suitable clients, UCIS should be included in the IFA’s review of appropriate products. The key words here are ‘suitable’ and ‘appropriate’.
“After reviewing the UCIS, the IFA may decide not to offer the product as it was not suitable but nonetheless the IFA can confirm they have reviewed the whole of market relevant to that particular client.”
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| Comment | Revealed: The strong-arm tactics of UCIS salesmen |
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Another warning re UCIS
Unfortunately Mrs Gee, after 31 December 2012 IFAs considering UCIS might be acting correctly and you might not. We should all be careful of sharing our opinion without obtaining a legal opinion. Those who can afford legal opinions will give their clients the most independent personal recommendation in relation to the investment products it offers. They would have thoroughly analysed the relevant markets in an unbiased way. In short, to ensure your clients get the most independent personal recommendation obtain a legal opinion before you go out there!
Posted by: Henry
I've had calls from nitwits ...
... pushing UCIS. One didn't know what MIFID was - despite needing to be MIFID regulated to sell UCIS. Another was pushing a UCIS property scheme. When asked where the property was - UK, Cape Verde, Bongo-Bongoland or the former Soviet republic of Bulimia, he had no idea. Who the hell employs these people???
Posted by: Neil F Liversidge
Read article before commenting
To Henry: I think Ms Gee covered this off: “Those scared of losing their independent status are confusing the requirement to consider UCIS with the misunderstanding that they must recommend them.” You might want to read the article before commenting...
Posted by: Alistair Cunningham
A good read
I will rather read ‘legal opinion’ than ‘personal opinion’. Another good read is legislation and regulation!
Posted by: Lover of the educated
Salesmen...
No doubt the gentlemen from the FSA will now be going through Connaughts records to look for "all those IFA's selling UCITS" the salesman was doing business with. The clear point in all of this is that it is us who provide the advice within the regulatory framework, and under legal threat of sanction, not the management house rep. I never heard a Cru salesman say anything other than this is great, position it against cash, and then tell you that everyone is using it. I have long believed that the quality of information from some providers is suspect in that it shows you what they think you want to see, not what products actually do. But that's why there employees are sales staff, and we are IFA's.
Posted by: Mike Inkley
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Just a little warning
Mr Bedding needs to make sure he knows EXACTLY what his staff are saying as comments like "could not comment on any alleged conversation without knowing the context or further details" will come back and bite him on the bum as increasing numbers of adviser record all incoming and outgoing phone calls, so will have a verbatim recording of EXACTLY what has been said. We log them by name and date against the company and any "sales puff" which influences our advice may be used in defence at a later date. It may also be used where we DON'T advise on something and then as an industry we get hit for a massive FSCS levy to evidence failures of directors to supervise their staff. THIS is what the FSA should be asking for and encouraging, not a lengthier six monthly RMAR or Gabriel report. Whistle blowing on sales tactics and making sure they are recorded. That is NOT to say that there is anything wrong with Connaught Asset Management and their UCITs, they may be suitable for some people, but as teh article explains, with under 150 clients we already know we have no clients it is suitable for at the moment and hence we don't need to know anymore about the product. If we take on a client we think a UCITS MAY be suitable for, then we'll dig deeper. Until then, please police your slaes tactics better.
Posted by: Nameless