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Advisers face 500 complaints over Ucis and film investments

by Alex Steger on Nov 12, 2012 at 07:49

Advisers face 500 complaints over Ucis and film investments

Financial advisers could be hit with a hundreds of complaints over advice to invest in film schemes and unregulated collective investment schemes (Ucis), according to reports.

The Financial Times reported that nearly 500 investors were considering making a complaint against their adviser for allegedly mis-selling investments in film production companies and Ucis over the past decade.

The paper reported that unsophisticated investors had invested £2 billion of the £2.3 billion held in Ucis, and that the Financial Services Authority (FSA) estimated 114,000 out of 142,000 Ucis investors ‘may have been unlawfully promoted and/ or unsuitably recommended’ products.

Up to 3,000 firms marketed Ucis schemes, with almost four fifths breaching regulations when doing so, according to the FSA.

The FSA’s consultation on a clampdown of the sale of Ucis closes this week.

39 comments so far. Why not have your say?

JM Keynes

Nov 12, 2012 at 08:19

It always seems to be a story of the FSA locking the door after the horse has bolted - wouldn't it be far better for everyone concerned if it was totally illegal to market any of these schemes without there first being due diligence and approval by the FSA?

After all, there must be loads of FSA staff released now from implementation of the RDR (which is unlikely to benefit the consumer and has cost a fortune). Before they start work on some other hare-brained scheme, why not look at using these staff for something like this?

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Man in Black

Nov 12, 2012 at 08:20

So, the FSA "estimated 114,000 out of 142,000 UCIS investors may have been unlawfully promoted...products"?

Perhaps the FSA should start by explaining exactly what was and was not a lawful promotion?

And no, I don't mean listing exemptions generically so as to obscure those applying to advisers and discretionary managers.

I mean giving us a clear explanation of the Category 2 exemption and how it applies, grounded in real case law, and taking into account its own pronouncements on the subject going back to October 1987.

I mean disclosing their previous Board papers on the subject, where their Policy people advised that the exemptions were wider than FSA had previously claimed.

And as for suitability, why don't they point to the section in the suitability rules, agreed with the EU commission, where it says that recommendations of UCIS are prima facie unsuitable or high risk? Perhaps because there is no such rule and they have been making this up and operating by stealth.

Once they clear these points up, then perhaps they can pronounce on such subjects as unlawful promotion. Until then, they really should admit "But maybe 80% of those promotions are lawful after all and we're actually a bit clueless on the subject".

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Anitaki

Nov 12, 2012 at 08:31

For how long have these schemes been offered?

WHEN did the FSA decide or "discover" these were unlawful?

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jennie via mobile

Nov 12, 2012 at 08:38

This was inevitable and am surprised its taken so long given how many ucis are now in suspension. The 4/5 figure is high because the FSA think advice may have been suitable just not clearly documented, so is probably nit the tru figure. There has been a systemic mis selling of these products to Joe public though, by commission hungry IFAs who will get their comeuppance. MIB blaming the FSA is the answer you would expect from someone who is in the firing line, I'm not an adviser but would not go near these products with anyone's money.

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Julian D

Nov 12, 2012 at 08:58

@ Jennie

If you're not an adviser then I suggest you reserve your comments for your friends at the pub. It's all well and good making statements such as this after the fact, but unless you've ever known what it's like to give advice I'm afraid you're not qualifeid to comment.

We work in a world without rules, only 'principals' so we have to make our own assumptions about what's right and wrong; are 'regulated' by a body that won't answer direct questions when queried on the definition of less than murky gobbledygook, and then to top it all off are then criticised by our regulator and embers of the public for mis-sold products that are retrospectively pronounced as unsuitable.

I don't usually make direct retorts to these bloggs, but in this instance I'm afraid you should not be adding fuel to the fire in matters that do not directly concern you.

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Stevie Boy

Nov 12, 2012 at 08:58

Agree with you Jennie. So often advisers "flogging" these schemes don't even understand how they work or the risks involved.

In my experience, commission and wanting to appear specialist / niche are the two main drivers - neither of which are remotely connected to helping the client.

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Adam Grant

Nov 12, 2012 at 09:05

So far as I can see, there are two issues here:

1) if it's go the word "unregulated" in the name, why go near it?

2) Would there have been any complaints if it had provided a positive return? And therein lies the problem generally which should be causing major concern for financial planners, in so much as the blame culture which is rapidly overwhelming our society. Is it safe to recommend any products anymore that potentially have the prospect of losing money?

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Stevie Boy

Nov 12, 2012 at 09:08

@ Julian - if you have to make "assumptions" about what is right and wrong I truly fear for your clients.

If you only provide advice on matters / areas / products that you genuinely understand and put your client interests first then you have nothing to fear from the regulator or members of the public and you most certainly won't have to fear criticism for mis-sold products.

The fiercely defensive tone of your reply suggests something.

Jennie could be a para planner, a compliance officer or similar. Should these people reserve their opinions for the pub?

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Keith Cobby

Nov 12, 2012 at 09:20

I will reiterate the comments I made last week on this topic (and will probably make again next week!).

I would not invest in UCIS irrespective of the amount of money I had available.

I am surprised that regulated advisers would advise on unregulated products given that there are thousands of regulated products.

UCIS should be execution only.

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Julian D

Nov 12, 2012 at 09:23

@ Stevie

What I object to is that I didn't see anyone criticising these products when they were launched, only after the fact safely from behind closed doors.

Your inference regarding my defensive tone couldn't be wider from the mark. I simply don't like all this retrospective criticism from those that don't know what it's like to work on the coal face.

As far as assumptions are concerned if you have a translation of the FSA's compliance manual I'd like to see it. The assumptions I was referring to are regarding the ambiguos nature of the FSA's guidelines in all apects of their communications with our profession,

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Anitaki

Nov 12, 2012 at 09:41

Sometimes, people will only get on board the bus if they can sit in the driving seat

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Stevie Boy

Nov 12, 2012 at 09:56

@Julian

I appreciate what you are saying but Keith Cobby has summed it up perfectly.

It isn't about whether or not UCIS schemes were criticised at launch, nor is it about a retrospective critique. Unregulated is the word that should have warned many advisers / clients off.

Whilst everyone will have different clients with different needs, I can't think of too many instances where UCIS are appropriate for a retail / unsophisticated client.

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Pub Advisers via mobile

Nov 12, 2012 at 10:01

@Julian D well said.. Majority are back seat drivers.. Nice to see someone bitch slap a few of these morons they should join Parliment..

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David Ingram

Nov 12, 2012 at 10:05

The FSA needs to clarify the position going forward. I've not seen the FT article yet but if the above quote is accurate then the FT believes that £2B of a total of £2.3B has been invested in these schemes by 'unsophisticated' investors. Given that the FSA doesnt provide us with a clear and workable definition of what is a 'sophisticated' investor I doubt if the figure can really be checked. But, regardless of the past, CP12-19 tells us that these products are to be Retail Investment Products but can only be recommended to HNWI/Sophisticated investors.

A proper definition of 'sophisticated' is the least that is needed here but surely a better solution is to remove them (and other higher risk investments with which the FSA clearly has problems) from the definition of RIP entirely and restrict recommendations on them to advisers with a specific qualification.

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Arthur Schopenhauer

Nov 12, 2012 at 10:05

@Julian D

The majority of UCIS that I have seen are fine you only get the negative ones here and the true culprits on those are the banks accountants and lawyers and administrators who seem to have withdrawn support from these major disasters without informing the IFA community.

Surely the FSA knew about this BEFORE the failure and could have interviewed rather than letting a few insiders get out and innocent suffer a disproportionate loss. This is not the first time this has happened who remembers the MP AVC scheme with Equitable they got out on a small penalty before the collapse

Maybe Citywire could write a positive article setting out how UCIS can be promoted adn sold so that all the ignorance can be corrected for at least those who read these columns

All this negative reporting is just a waste of time.

At the PFS conference last week I asked the FSA representative on their information stand if VCT, EIS and SEIS could be regarded as UCIS.

You would have thought I was speaking some alien language as the blank look said it all. I had no coherent reply

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Jonathan Kirby

Nov 12, 2012 at 10:07

Had the FSA wanted to prevent confusion in the market perhaps they would have considered the impact on the general public of having two such similarly confusing sounding sets of initials:

UCITS & UCIS

Now whereas an IFA should be expected to know the difference, as far as the public is concerned I have no doubt that people buying direct will have thought they were buying a regulated product. Certainly I have had one client who when I mentioned UCITS said that they had heard they were very dangerous investments.

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Bob Donaldson

Nov 12, 2012 at 10:12

If you can complain about the advice given after you have taken it and it does not cost you anything but a simple letter the the advisory firm, but by doing so you may have a chance however slim as an investor of retrieving some of you rmoney would you not take it.

Someone was talking about restoring trust in financial advisors, I think that it is a two way street. Advisors should also remember that clients are friends until everything goes wrong and then they will not be to blame but apply the selective memory process.

As some have stated in the past write up every file as if you are going to defend a court case and remember you are running a business not a charity shop or friends reunited.

Sad as that may seem as we all count clients as friends this is the litigious society that we now live in.

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Kate Brookes

Nov 12, 2012 at 10:18

Oh for goodness sake, I'm an adviser and I have never sold any UCIS.

Can someone write an article to sit beside this one saying 500 people where happy with their adviser and the advice they received.

Or are the honest complaint free, compliant advisers going to be lumped in with all this AGAIN.

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Julian D

Nov 12, 2012 at 10:20

@ Arthur

Very well put, expecially the part about the FSA's present understanding of more technical prodcuts.

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Shaun F

Nov 12, 2012 at 10:31

Whilst I have never advised clients to enter into such a product I am aware of a number of these and to be fair in one case the FSA did allow publication of the previous 12 months figures however the provider did not want the product FSA regulated as it meant daily accounting was required and that the product be held in one company as opposed to several LLP,s which made selling far more tax efficient.

Digressing slighty where does one stop becoming an IFA and simply being able to provide an informed opinion?

I can only presume if we do not stand to profit?

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Lyndon Edwards

Nov 12, 2012 at 10:38

These complex schemes such as film partnerships are usually set up as tax efficient investments, and the basic appeal is to the greed of high net worth investors who see an opportunity to reduce their tax liabilities. As there are relatively few IFAs who are also accountants, they are usually called in by an accountancy/tax advisory firm, to do a presentation to clients. The accountant appears squeaky clean to the client and gains their respect for knowing someone who can reduce their taxes, but it's the IFA who takes the full advisory risk. Any commission is usually taken as a slice off the top of the investment, that's the way it works with these products, and the client is advised of the lower, net amount invested. If the client prefers, they can pay a fee instead and invest the gross amount. This is agreed in advance; there is no hidden commission.

People like Jennie dont understand this. No wonder she hasn't the ***** to do this job.

Neither do they understand that the accountancy firms have set up separate limited companies to receive their share of any commission for referrals to IFAs, to get round the rules.

Does she ever ask Tesco's checkout staff how much the shop has made on her shopping?What is the mark-up on a tin of beans or a bag of frozen peas? I think we should be told.

If we have full disclosure for financial services why not for other industries.

Is Jennie ever bothered by the fact that her new shoes will probably have been made in a factory abroad for peanuts but she will pay possibly 3 x the cost?

Does she know the trade price of a fridge?.

Is she bothered by the usual 150% mark-up for her clothes, that will last maybe a year before going out of fashion?

Can we start a movement for disclosure in all retail businesses please in the interests of fairness and equality.

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Hickky

Nov 12, 2012 at 10:45

It is rarely I have come accross a UCIS scheme held by clients that is not toxic. This is not to say there have not been a few regulated products that were also toxic.

The truth is that any adviser who thinks it is his or her job to identify something that has great returns, with minimum risk that is not mainstream, is deluding him/herself, and exaserpating mistrust in our industry.

Ever since regulations allowed many different types of investments into pensions, the vast sums invested became a target for the mad, bad and dishonest, and UCIS seemed to be the way to get access to money for their own nefarious needs. How many investors were seduced by tales of early investors profits in Microsoft or Apple, and getting in on the ground floor is the best route to wealth beyond your wildest dreams? UCIS sales are for the greedy/lazy/stupid adviser when sold as a one off. If they form part of a protfolio of many hundreds of thousands of pounds and never exceed 5% of the total, then as a punt, then maybe, but even then, most with large sums are more concerned with capital preservation.

I realise the UCIS as investments are not all bad, many are run properly, honestly and are unregulated because the rules would not allow a regulated route, and it is a shame that these products will be shut out, but if these investments will stall due to the lack of new investment, then alter structures to allow regulated money to come in.

Sadly I have come accross totally inappropriate investing into UCIS, either via SIPPS or stand-alone. For any firm to provide due dillegence for advisers, unaudited and not independant sends alarm bells ringing.

Investments in little known asset classes can be made by private equity if they feel there is a good case for future profit, however they require day to day scrutiny, not something the dishonest relish.

Bas UCIS from being advised on from regulated advisers? Certainly. Then if you can manage it ,FSA, ban hedge funds that take big short positions, by not allowing equities to be lent. It is pure spin to say the shorting of stock allows the market transparancy, all it does is to make markets more volatile and thieves profits from long only investments.

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Dawn Bird

Nov 12, 2012 at 10:50

There are to many posters on here who always state "I have never myself advised on UCIS"

I think you protest to much on this issue

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Jennie via mobile

Nov 12, 2012 at 11:24

@Lyndon, thank you for your educational response, however if Tesco were selling me toxic beans then I would complain to them, however tesco are not advising me to take their beans, I make my own choice without any direction, so I am not concerned how much they are making off them, if I find the beans too expensive or to contain poison I will simply purchase another product to fill my belly.

I find your comparisons to retail irrelevant. The ethics of the shoes, while important, does not leave me bankrupt, except maybe morally. I pay what I think the shoes are worth and can afford, making the same comparision to financial services is much more difficult. I cant afford to spend my life savings on shoes, nor can I afford to lose it on an unregulated fund.

I think you quite clearly said it yourself, that "the IFA who takes the full advisory risk".

I'm not an advisor but I am a well informed financial professional so please dont dismiss my opinion because it conflicts with your views.

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Anitaki

Nov 12, 2012 at 11:48

@ Dawn Bird

You said ...................."There are to many posters on here who always state "I have never myself advised on UCIS"

I think you protest to much on this issue........."

Proving that you have totally missed the point.

People are entitled to protest if they have never sold a product yet end up forking out compensation cheques, especially when the person causing the problem has phoenixed as we know has happened in some cases, or moved on to selling "solar panels" guaranteeing energy savings that will recoup your initial outlay in just 6 months

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disgusted

Nov 12, 2012 at 11:58

@ Stevie Boy

So, just because it is unregulated, Advisers and clients should stay away??

How do you explain Will writing, Trust planning, Business agreements etc?

All very useful tools and sound financial planning. If you don't advise your clients on these services then I seriously fear for YOUR clients!!

I work in both regulated and unregulated environments and see no problems with doing so.

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Kate Brookes

Nov 12, 2012 at 12:03

@ Dawn Bird eh? I haven't, period. Statement of fact, no protest.

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Simon Mackfall - MD Younion

Nov 12, 2012 at 12:39

@ Kate Brookes - Whilst I couldn't agree more, that a good news story would be nice, I don't think that grabs people's attention.

That said - it might...(almost 500 out of 142,000 investors may complain...)

"Over 99.6% of UCIS Investors appear to be happy!"

Lies, damned lies and statistics?!

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Arthur Schopenhauer

Nov 12, 2012 at 12:54

@ Simon Mackfall

The figures are unreliable and the article pointless

If you follow the money the objective is to advantage big institutions by eliminating competition at advisor and provider levels.

Why do you think NEST cannot accept transfers.. BIG LOBBY

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Simon Mackfall - MD Younion

Nov 12, 2012 at 13:23

@ Mr Schopenhauer - I quite agree; on reflection, it was folly to have commented. This post, too, likely only serves to waste others' time away from what matters in their lives - not least as a result of seeing the number of Comments rise again and being teased by curiosity to read such tripe as I now type. Right, off to do something more meaningful... Have a great day everyone.

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Hickky

Nov 12, 2012 at 13:37

@ Jennie

You pay what you think your shoes are worth, which you feel is an easy decision to make, whereas you feel assessing the cost of financial services is not as easy.

But how have you assessed the market in shoes. What are your benchmarks?

Do Jimmy Choos represent the benchmark for quality/value, or does Primark?

Are Clarke's shoes cheap and cheerfull or expensive and drab?

My point is that your perceptions of the value of any product is based on advertising, promotion and spin. The price of anything is the most the supplier can get for it, it has nothing to do with production cost. This is normality, but how else do you account for a bottle of Lidl champagne @ £12.99 and a bottle of Crug @ £125.00. Both are Champagne, both non vintage, both the same strength, and both from the same grapes? Probably less than £2.00 difference in production costs.

With financial services, gross profits are disclosed up front, to a greater or lesser degree and this throws you, as you have to address the issue of cost rather than value like no other product purchase requires you to do.

So buy a bottle of Lidl champagne and the gross is probably only £2.00, but the Krug is £105.

This is why financial services represent great value for money!

And keeps Krug solvent.

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John Frink

Nov 12, 2012 at 13:46

@disgusted

Did love the irony of your UCIS defence - by listing other areas advisers really shouldn't be meddling (outside of a referral). Wills, trusts and business agreements are the domain of solicitors.

What qualifies you to write a Will?!

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Arthur Schopenhauer

Nov 12, 2012 at 14:08

@ John Fink

If you eliminate enough areas you remove any skill or coordination in ensuring the client has joined up thinking in his financial plan ( or meddling as you call it) I think he was saying advise that a will is written and the objectives mirroring the financial plan objectives which usually comes from a dialog between the client , lawyer and adviser

This is great news because then there is no advice just knowledge which can be gleaned by the individual from the internet sorted by price which then allows it to go compliantly bust without damaging anyone but the individual

We all might as well work for the Post Office

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Christopher Petrie

Nov 12, 2012 at 15:28

As I understand it the FSA has - albeit only very recently - issued a dictat to say that IFAs should never promote UCIS to almost anyone, only the very small proportion of people who meet their definition of "sophisticated investor" and how have the funds and appetite for the risk as well.

In other words, the Regulator is telling advisors : "do not recommend UCIS".

Now, that might be a good idea or not a good idea, but it's the law. Therefore, I shan't be recommending UCIS as I have no wish to break the law. There may be other reasons for not recommending UCIS as well, but it no longer matters - if it's breaking FSA rules (which is the Law) then I shan't be doing it.

Plenty of other investments to consider.

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Arthur Schopenhauer

Nov 12, 2012 at 15:47

@Christopher Petrie

It has always been the case that UCIS are for the HNW, Certified and self certified sophisticated and the professional investor. Even then that is subject to their risk profile being aligned tot he product offered

This is NOT recent it has been the case for many years

What has happened is that some advisers in the past were either ignorant of the rules or in some cases flagrantly ignored the rules

What we are getting is a re statement of the rules by the FSA and a media witch hunt A usual tactic where there are inadequate journalistic skills

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Man in Black

Nov 12, 2012 at 19:05

@Schopenhauer

I'm afraid that's simply not true.

Since the original s.76(1) came into force, an exemption has existed for advisers or discretionary managers to recommend UCIS to their established customers where they had a settled ongoing relationship if they believed them to be suitable (and no, that wasn't the current COBS9 suitability test). This exemption is the source of the current 'Category 2' exemption and pre-dates the specific sophisticated, HNWI et ceter exemptions you're referring to.

The FSA is only *now* (3 years into their UCIS work) proposing to remove that exemption. To paraphrase Linda Woodhall, the framework for UCIS promotion was always statutory and never in the gift of FSA to make up or ignore as they have in practice done so to date.

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Arthur Schopenhauer

Nov 12, 2012 at 19:48

@ Man in black

Thank you when was S.76(1) in force?

We have always taken the view that UCIS are possibly suitable for the HNW, Certified and self certified sophisticated and the professional investor. Even then that is subject to their risk profile being aligned tot he product offered

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Man in Black

Nov 12, 2012 at 20:39

@Schopenhauer

Sorry, s,76 was the predecessor of s.238 and came into force with the original Act i.e. 29 April 1988.

BTW, your approach is probably a very wise approach to take. Something else you should try to cover is an assessment of knowledge/experience so as to be able to demonstrate the client has a sporting chance of understanding the risks of the specific scheme.

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Arthur Schopenhauer

Nov 12, 2012 at 21:06

Thank you

We usually try to see if there is a solution to the old catch 22 of having done similar things before.Fortunately we have a number of successful EZ's going back as far as Swansea and BES schemes that actually produced good profits

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