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Why you should avoid Ucis at all costs
Unregulated collective investment schemes (Ucis) are 'clearly unsuitable' for the ordinary investor, according to the FSA. Here's why...
by Victoria Bischoff on Aug 24, 2012 at 12:06Follow @VBischoff
The regulator has this week proposed plans to ban the promotion of unregulated collective investment schemes or ‘Ucis’ to retail investors.
For most ordinary investors these products are ‘clearly unsuitable’, the Financial Services Authority (FSA) said. They are ‘esoteric and illiquid’ in nature and leave investors ‘exposed to significant potential for large losses’.
Here we explain why exactly investors should steer clear of this risky investment.
1. They are unregulated
First, as the name clearly states, this type of investment is unregulated.
Regulated investment schemes are required to meet certain standards set out by the Financial Services Authority (FSA) which dictate how the investment must run and the risks it can take. Schemes that fail to meet the FSA’s requirements face regulatory action and can be shut down.
Unregulated investments, however, are not subject to these restrictions and frequently invest in assets that are not available to regulated schemes. They may also have a much more complex structure with opaque fees and charges and are not required to abide by the FSA’s borrowing or ‘gearing’ restrictions. As a result they are generally considered by the FSA to be much riskier.
2. No redress
This means that should the scheme experience problems or go bust investors will not be able to claim compensation – at present investors in regulated schemes are entitled to up to £50,000 per firm under the FSCS.
An investor into an unregulated scheme will also be unable to seek help from the Ombudsman should they wish to make a complaint.
Although, it is important to point out that while Ucis funds are not regulated by the FSA, the advice given by financial advisers selling these investments is. So, if you think you have been mis-sold an unregulated investment scheme by a regulated adviser you are entitled to protection from the FSCS and the FOS.
3. Risky investments
Ucis typically invest in assets that can be extremely difficult to value – such as fine wine, crops and timber, for example – and are therefore only really appropriate for investors with a decent amount of knowledge of the industry.
What's more, these types of investments are generally illiquid as they are not traded on an established exchange, which means it can be difficult to get your hands on your money at short notice. And according to the FSA, can be susceptible to catastrophic loss of value.
More about this:
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What others are saying
- Financial Ombudsman Service
- Financial Services Compensation Scheme
- Financial Services Authority
- FSA factsheet
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