UCIS promotion has been banned to all but sophisticated investors but the 'opportunities' haven't gone away. Carmen Reichman finds out how advisers deal with pushy salesmen and when to blow the whistle ...
Glossy brochures promising above-average returns for below-average risk in super-sexy asset classes have probably come across the desks of most advisers out there.
These investment schemes usually fall under the banner of unregulated collective investment schemes (UCIS) and are usually kept firmly at arm's length.
The promotion of these schemes was banned by the Financial Conduct Authority (FCA) in January. Restrictions are now in place on the marketing of UCIS to all but ‘sophisticated investors'.
The ban was put in place to protect less erudite investors from risky products which come with no regulatory protection when things go wrong.
However, UCIS marketing has far from ceased. Advisers and their clients are still being targeted by firms which try to convince them to invest in the esoteric products promising above average returns.
And being unregulated, the firms promoting UCIS seem to be able to get away with more than advisers.
Caught in a trap
"The issue with UCIS is that because they are unregulated, anyone can go out and sell them," said Dobson and Hodge financial services director Paul Stocks. He said he had seen a number of extraordinary offers in the past four years, particularly as texts and unsolicited phone calls.
Stocks even sat at open forums "where people talk about unregulated investments putting figures on future performance and demeaning the regulated world". He was most recently offered a guaranteed 15%-30% return a year on property at such a meeting.
"If I put that in a letter to a client, the FCA and my compliance guys quite rightly would come down on me like a ton of bricks," he said.
However, he has yet to report any such UCIS to the regulator: "It's a bit murky. If I thought there was a genuine fraud going on [I would]. You've got to be careful because it could be libellous."
Plutus Wealth Management chartered financial planner Robert Forbes is in the process of reporting an offer which he received via an unsolicited call last week.
A diamond trader promised him 7% guaranteed returns per month for an investment in coloured diamonds. The stones were offered at £43,000, but Forbes estimated they were worth more like £400.
On closer inspection, he noticed the trader was using phrases from the film Boiler Room, such as: "We'll start on something small and then swing through the fences the next time."
Forbes said: "I do worry that [such cases] don't fall onto the FCA's radar and only fall onto the Office of Fair Trading's radar when someone has been duped. What was quite interesting was the persistence of these guys – they are actually quite persuasive and persistent and pretty good at what they do."
Rowley Turton director Scott Gallacher confirmed it was notoriously difficult for clients to realise they are being scammed: "I've even taken paperwork off a client only to have him invest in the next scam."
Gallacher reports investment offers via the regulator's whistleblower email system if he thinks they are a scam. Often, UCIS offers appear to be linked to regulated self-invested personal pensions (SIPP) to make them look more legitimate.
But Santorini Financial Planning director Matthew Walne said a little dig deeper may reveal they are not actually approved by any SIPP. He said he had never thought to report UCIS to the FCA but was considering it now.
He came across a SIPP provider's legal assessment of storage pods – an investment he was offered not long ago – which highlighted just how muddy the field is when it recognised a "widespread mis-selling of store pods to investors for whom they are manifestly unsuitable".
Phil Billingham Partnership director Phil Billingham argued small advisory firms are not capable of protecting all consumers, but needed to be more proactive at reporting such cases.
"Anything that looks too good to be true should be reported to the regulator. If you smell a problem, the sooner the regulator is alerted [the more] it gives them the opportunity to prevent problems as opposed to sweeping up afterwards," he said.
Catch them if you can?
It is not an issue of whether something is illegal, Billingham explained: "Modern-day robbers don't put masks and stripy vests on and a gun and go into a bank.
"[They] are now creating what look like investment schemes and flogging them to the unsuspecting greedy, collecting millions of pounds. It's the same thing. We've just got to be much more careful about it."
Billingham also questioned whether there was any libel issue as proposed by other advisers: "All you are saying is this looks a bit dodgy to me and get the regulator to have a look at it."
SIPP provider view
Dentons Pensions director of technical services Martin Tilley said: "We've been approached by an investment opportunity in land. Turns out it was 200km from Chernobyl.
What the FCA says...
"Tip-offs from advisers can be invaluable to us uncovering scams. Advisers should be alert to anything that seems to fall foul of the restrictions on the promotion of unregulated collective investment schemes. Advisers should be particularly aware of high risk, speculative investment schemes where the returns promised appear too good to be true"
FCA whistleblowing line: 020 7066 9200
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