Legal Actions Taken Against Financial Advisors

Jack Humphrey, Regulatory journalist
July 20, 2011 /

The Financial Services Authority has banned financial advisors Paul Banfield and Anthony Moss, from Best Advice Financial Planning Limited, following detection of weaknesses in the firm’s systems and controls that resulted in customers being exposed to the risk of receiving unsuitable advice.

While serving as directors at Best Advice Financial Planning, Moss and Banfield allegedly failed in their responsibility to ensure systems and controls met FSA standards. The FSA found that at least 22 customers were advised to invest in unregulated collective investment schemes (UCIS) despite the firm’s lack of understanding about the regulatory requirements relating to the promotion of these investments.

In addition, the advisory services firm did not take “reasonable care to ensure customers received suitable advice.”

The FSA previously took action against a number of other firms and individuals for failings in relation to UCIS, including Specialist Solutions Plc, Perspective Financial Management Limited, Moneywise IFA Limited, and Clark Rees LLP.

More recently, the FSA fined Andrew Ruff and Richard Lindley, two former directors of financial adviser network of Alpha to Omega (UK) Limited (A2O), £28,000 and £14,000, respectively, for failing to give customers appropriate investment advice.

The small independent financial advice firm, which was based in Surrey, was dissolved on July 20, 2011. Prior to its dissolution, the liquidator of Best Advice contacted a number of customers that the FSA had identified as potentially having been advised to invest in UCIS. These customers were advised to contact an independent financial advisor and/or the Financial Services Compensation Scheme if they had concerns about the advice they received.

The financial advisors have been prohibited from holding any significant influence function (SIF), while Banfield has also been prohibited from being an investment advisor and fined £15,000. Moss would have been fined £20,000 but this was not enforced as he was able to provide evidence of financial hardship.

In one instance, according to the FSA, a customer was advised to cash in a number of existing investments and reinvest in several UCIS through an offshore bond.

The advisory services firm failed to consider whether the customer was eligible to invest in a UCIS or adequately assess her attitude to risk. Moreover, Best Advice also failed to assess her existing investments before making a recommendation, despite the client specifically requesting such an assessment. The customer was 87 at the time and more than 80 percent of her funds were reinvested in UCIS.

During FSA’s investigation the financial advisors admitted that they did not fully understand the regulatory restrictions on UCIS despite their firm recommending them to customers.

“Although UCIS are not authorised schemes there are regulations surrounding their promotion. Therefore people carrying on regulated activities in relation to them, such as giving a personal recommendation, are subject to FSA regulation,” the UK financial regulator said.

Tom Spender, head of retail enforcement at the FSA, added: “Last year we published the findings of a thematic review that looked at the sale of UCIS by small firms. In it we set out our concerns that firms lacked awareness of the regulatory requirements, lacked understanding of the market and the risks involved, and were promoting and recommending UCIS to customers who were not eligible for them. This case firmly fits in with those findings.

“UCIS are rarely suitable for retail investors. Many are characterised by a high degree of volatility, illiquidity or both – and are therefore usually regarded as speculative investments. Even when they are recommended they are unsuitable for anything more than a small share of a portfolio.

“We want firms to read the details of this case, along with the findings of our review and other recent publications on UCIS, and learn from them. We’ve seen a proliferation of firms offering UCIS so it is absolutely vital they do their homework before recommending these schemes to investors.”


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