In a letter sent to IFAs and unregulated collective investment scheme (UCIS) providers, the FSA this week highlighted its key concerns around the products.
Echoing previous warnings, most recently in its retail conduct risk outlook, they have already triggered enforcement activity which has led to 20 final notices and four decision notices since 2010.
Promoting UCIS to Retail Clients
The majority of the firms the FSA has seen in its supervisory work could not demonstrate that they took reasonable (or, in some cases, any) steps to ensure their retail clients were eligible to receive UCIS promotions. It saw firms:
failing to understand that recommending an investment in a UCIS in the context of advice is a form of financial promotion, so eligibility to receive UCIS promotions must be considered before any advice is provided
The FSA’s key concerns about UCIS sales
promoting UCIS to their customers (i.e. introducing customers to UCIS and/or inducing or inviting them to invest in UCIS) where this was prohibited as their customers were not eligible for this type of investment, putting customers at significant risk of unsuitable advice
failing to evidence steps they had taken to ensure an appropriate exemption to the statutory promotional restrictions applied to the customers to whom they promoted UCIS.
Suitability of advice
The majority of firms the FSA saw failed to demonstrate that they took reasonable steps to ensure that UCIS recommendations were suitable for their clients. This is of particular concern given that these products are unsuitable for the vast majority of retail investors. It saw firms:
recommending investments which did not match the client's attitude to risk, needs and objectives, and their overall personal circumstances
over-estimating the knowledge and experience of a retail client
failing to act in their client's best interests by not taking reasonable steps to ensure the UCIS (and underlying asset allocation) was suitable.
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First mentioned in Cridland Report
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