Public Censure Against Financial Services Firms Ensues After Failure to Advise Customers

Jack Humphrey, Regulatory journalist
April 18, 2011 /

The Financial Services Authority has penalized late last week two financial services firms that failed to give suitable advice to their customers in relation to their investment schemes.

IFA firm Specialist Solutions Plc agreed to pay £35,000 for its shortcomings in seeing to it that its customers were qualified to receive the promotions for Unregulated Collective Investment Schemes (UCIS). The financial services firm also failed to advise its customers about the suitability of their investment, according to FSA.

In October 2010, the FSA had ordered Specialist Solutions to conduct a review into the promotions of UCIS and look into the advice provided to the investors of UCIS through a skilled person. The advice in question was given during 2008 and 2009.

In that same period, 101 UCIS customers have invested more than £11 million in one or more of the three UCIS funds following the recommendations made by the financial services firm.

However, the FSA found in a thematic review into the promotion of UCIS that Specialist Solutions failed to comply with the regulations governing UCIS promotion. The regulator added that about 10 of the 20 files reviewed by the appointee of Specialist Solutions for suitability that contained pieces of advice about the investment were “unsuitable.”

To make amends to the affected investors, the FSA has already required the financial services firm to communicate with those that received the unsuitable advice regarding the UCIS.

On the other hand, the FSA has fined The Matrix Model Group (UK) Limited for giving deficient advice to its customers about the sales of a geared traded endowment policy (“GTEP”) product.

According to the FSA, the Matrix Model Group gave an unsuitable advice to its customers when it recommended the GTEP product. Specifically, the financial services firm failed to “match customers’ attitudes to risk to the product profile.”

The Matrix Model also failed to contact the customers to inform them about the risk posed by the GTEP product, the FSA added.

“Failure to give suitable advice around the sales of complex investment products is unacceptable as it puts consumers at real risk of financial detriment,” said Tom Spender, head of retail enforcement at the FSA.

The shortcomings in the suitability of advice given by Matrix to customers came to light in 2007 when the FSA conducted a thematic review into the GTEP products.

Since then, the financial services firm began to contact the GTEP customers to complete new fact find documents and will start communicating with the rest that may have received unsuitable advice.

 

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