Alternate Insurance Services to pay out over £1m to investors following case in royal court
A full review of Jersey's regulatory regime has been ordered following a court judgment which found investors were "recklessly mislead" by their Jersey-based financial adviser.
Jersey's Royal Court ordered compensation be paid to investors after ruling in favour of Jersey Financial Services Commission (JFSC) in 27 out of 28 cases brought against Alternate Insurance Services.
It found investors lost significant amounts of money after they bought high-risk investments, believing they were low risk. The judge awarded a total of £1,564,128.56 to the investors to restore them to their previous position.
Alternate was authorised in Jersey to give investment advice, but it came to the attention of the Commission after it received three complaints from investors who had bought Traded Endowment Investment Portfolio Plans (Tipps) on advice from Alternate advisers.
A Tipp typically involves the purchase by the customers of a portfolio of second hand endowment policies. To enable investors to invest in a bigger portfolio than they would otherwise be able to afford, the Tipp product includes the step of borrowing significant sums which are added to the investment.
While this approach enables additional endowment policies to be purchased, it also has the effect of increasing the risk to investors who have to repay the loan regardless of the performance of the policies. Investors can therefore lose more than they invested.
The court found these products were highly unsuitable for the particular investors as they wished to purchase low risk products but were sold high-risk products. In a statement, JFSC said it accepted the court's recommendation that a full review be undertaken as a matter of urgency, to identify where the regulatory regime could be strengthened.
It said: "The judgment raised many issues to be considered by the Commission relating to compensation schemes, the registration process for financial advisers, professional indemnity insurance, and the scope of certain terms in the Financial Services (Jersey) Law 1998.
"The Commission is committed to considering each issue properly and promptly with full consultation before deciding if changes need to be made, in addition to the courses of action open to it to attempt to recover as much money as possible for the investors in this case."
John Harris, director-general of the JFSC, said: "The Commission has been pro-active in investigating three complaints and then widening the net to investigate the cases of all investors who were sold the product.
"In fact, many of the investors were not aware that they had been mis-sold the product, indeed many were not aware of the significant loan element forming part of the product and certainly not aware of its effect. The regulatory regime requires that firms offering advice offer suitable advice and the Commission was of the view that not only was the advice unsuitable for these investors but that they had been misled."
Nine in 10 do not have income protection
Set to become part of Single Financial Guidance Body
Also plan to scrap NI on contributions
Eight-week high against US dollar
Lower cost option for advisers