That the regulator has begun naming and shaming those that have made unsuitable sales puts more emphasis its current campaign to ban the sale of Ucis funds to the “majority of retail investors”.
The FSA believes that only one of every four advised sales of Ucis to retail investors has been suitable and estimates that the number of distributing wealth managers and IFAs could be as high as 3,000.
The total assets invested by retail customers not categorised as high net worth or sophisticated could be around £2bn. As Ian Stott, client services director at compliance consultant The consulting Consortium points out, based upon a 1:4 suitability ratio, £1.5bn of retail client cash could be sitting in potentially unsuitable investments. Suddenly a £58k fine doesn’t seem so large.
Appropriate checks
An obvious first step for any adviser would be to check their records.
“You should identify all historical sales and ensure you have documented eligibility and suitability and have appropriate checks in place to demonstrate disclosure,” says Stott.
“The FSA’s main concerns about the advice process are that firms typically have not adequately considered their customers eligibility for Ucis and compound this with inadequate quality of advice or suitability.”
Stott stresses that eligibility and suitability, involves not just adequately assessing a client’s personal and financial circumstances, but also being able to show that an intermediary has provided them with written explanations as to why the product was suitable.
“The adviser should have written confirmation including highlights of all risks, costs and charges pertinent to their Ucis recommendation, and be able to clearly explain why Ucis was suitable for the client,” he adds.
No compensation
“They should also have made it clear that Ucis are not regulated, that the client would not have any cancellation rights, and may not be covered by the Financial Ombudsman Service should they have a complaint about the fund or the Financial Services Compensation Scheme should they need to seek compensation.”
Apologies if this all sounds obvious, but best beware a regulator on the rampage!
Ian Stott’s full rundown on Ucis features in the forthcoming October edition of Portfolio Adviser out soon.
