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FSA bans and fines IFA £60,000 for Ucis mis-selling
by Michelle Abrego on May 30, 2012 at 10:17
The Financial Services Authority (FSA) has fined and banned IFA Patrick Francis O’Donnell of P3 Wealth Management £60,000 for advising his clients to invest in unsuitable unregulated collective investment schemes (Ucis) and other non-mainstream investments.
The FSA said O’Donnell did not understand the regulatory restrictions on the promotion of Ucis and failed to promote them in a compliant manner. It has banned O’Donnell from performing any function in relation to any regulated activity in financial services.
O’Donnell advised 57 of his customers to invest in Ucis, and advised 14 of these to invest also in other non-mainstream investments. The FSA sampled nine files covering 15 customers and found that two-thirds of his clients had invested over 5% of their known available funds into Ucis and other unsuitable products.
The FSA asked P3 to stop selling Ucis after its visit, but despite being aware of the FSA’s concerns, the adviser permitted £185,306 of Ucis business to be completed four days before he confirmed with the FSA he would stop, according to the regulator. After he confirmed, he also completed Ucis investment applications on behalf of two of his clients.
As a result of his advice, a fork-lift driver and his wife invested their entire pension funds into Ucis, while a cautious investor put 94% of her known assets into non-mainstream investments in an attempt to provide her husband with benefits in the event of her death. In addition, a mother earning a small salary and supporting a dependent son invested 93% of her known pension into Ucis.
The FSA said: ‘Although O’Donnell may have honestly and sincerely believed he was doing his best for his customers, he advised many of them to invest almost all of their wealth in one or more illiquid, complex and higher risk investments.’
O’Donnell was the sole director and regulated adviser at West Lothian-based P3. The FSA has cancelled P3’s permission to carry out regulated activities.
Tom Spender (pictured), head of retail enforcement at the FSA, said: ‘O’Donnell had absolutely no understanding of the regulatory restrictions in place which prohibit advisers from selling Ucis to the vast majority of UK retail investors. He also completely failed to make recommendations that were suitable for his clients’ individual needs and circumstances.
‘Such mis-advice cannot continue. Ucis and other non-mainstream investments are very often high-risk, complex products, which are not appropriate for most retail investors. We will continue to intervene where we find mis-selling.’
The promotion and sale of Ucis are subject to FSA rules even though the schemes are not regulated.
Ucis cannot be promoted to retail consumers in the UK and FSA rules state they should be marketed only to limited categories of investors, such as sophisticated investors and high net worth individuals.
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