The advice community has flagged concerns the ‘shadow industry' of unregulated advisers is preying on consumers post-RDR. Carmen Reichman investigates…
Broadly, it is accepted that unregulated advice comes in two forms - from those ‘who don't abide by the rules' and those who ‘purport to be regulated but aren't'.
Both categories are a growing concern to the regulated community but it is the latter that often draws in unassuming consumers and muddies transparency about products.
It is said these ‘advisers' (who pretend to be regulated) lure people into investing in esoteric products for which they promise larger-than-average returns without properly testing their suitability.
Are unregulated ‘advisers’ making easy prey of consumers post-RDR?
Regulated advisers pay levies to ensure consumers have a safety net to fall back on when things go wrong, but clients of unregulated ‘advisers' are in danger of missing out on any form of redress as their investment does not qualify for protection.
The Retail Distribution Review (RDR) was meant to sort the problem of ‘rogue traders' out but it may have made the problem worse by pushing more people out of the regulated space, said Dobson & Hodge financial services director Paul Stocks.
Stocks warned that consumers were oblivious to the meaning of regulated advice and were failing to ask the right questions before agreeing on a deal with an ‘adviser'.
Appleton Gerrard financial planner Kusal Ariyawansa agreed. He suggested that the regulator should launch a campaign while and the Money Advice Service should do more to educate the public about the existence of scammers and how to avoid them.
"If someone knocks on the door and asks to read the meter we'd want to know they are who they say they are before letting them in," he said.
The advice industry needs a similar degree of consumer awareness, he added.
However, fellow adviser Kim Barrett of Barretts Financial Solutions said he doubted that consumers were that easily scammed.
"I see some of these scam and scare stories and perhaps I'm a bit naïve because when anyone comes through our door they are normally quite searching in what they ask and quite direct in what they want to know before they would engage us."
He added he would be "gobsmacked" if a client was "able to engage an unauthorised adviser without realising they are doing it" because of the various "checks and balances" in place.
Barrett explained he had recently even been asked by a prospective client whether he had a Statement of Professional Standing.
However, he warned that the regulator needed to crack down harder on fraudulent advisers. The ‘soft' stance of the Financial Services Authority proved a "folly", he said. "Sadly, whether we as advisers like it or not, the folly of a soft stance has been realised and it's caused all sorts of mayhem so the obvious is that the regulator has to be far more strict," he added.
The Financial Conduct Authority (FCA) has already shown it's made of a tougher mettle than its predecessor, having helped to jail two advisers for giving unauthorised advice earlier this month.
Gary Hexley and John Cooper were jailed after giving financial advice without holding the relevant permissions to elderly investors over a period of 18 months, while netting more than £80,000 in commission.
The FCA said it would continue to crack down on "those who seek to dupe consumers" while publishing warning notices about unauthorised firms. The regulator has also installed a whistleblowing phone line and an "easily accessible" version of its financial services register.
Indeed, its whistle-blowing line has seen a 23% increase in the number of calls received over the last year, according to data published last week following a freedom of information request by law firm RPC.
What the FCA says:
A spokesman told PA: "Unauthorised firms who carry on regulated activity are breaking the law. We regularly publish warnings to give consumers the information they need to avoid being taken in. When appropriate we will also prosecute.
"Only this month, two individuals who thought they were above the law were jailed following prosecution by the FCA.
"We will continue to take action against those who seek to dupe consumers and who show utter disdain for a sector in which tens of thousands of authorised advisers work hard for the good of their customers."
Sometimes the regulator does listen...
On 29 October the regulator published a warning about the mortgage introducer Joe Kernan & Sons suggesting it was acting without authorisation. However, after PA's sister title Mortgage Solutions reported on the story, the firm got in touch with the FCA and satisfied the regulator that it would meet its concerns. As a result, the FCA confirmed the next day it was withdrawing its warning about the firm and had no further inquiries at the time.
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