The latter is meant to regulate the conduct of businesses by ensuring effective competition. Sadly it has already fallen down in not stopping sales of potentially risky unregulated collective investment schemes (UCITs) to those with limited resources.
The FCA has identified such bodies but has amazingly postponed enforcement until next January. This sloth-like approach allows half a year of mis-selling by both advisors and product promoters.
The problem has not suddenly surfaced. The unlamented FSA reported on the dangers back in July 2010, saying three-quarters of such sales were unsuitable and advisors were promoting them because of the high commission.
Over 85,000 hold UCIT products worth more than £2.3bn and so it is big business. The investments can range from antiques and forestry to wine and wind farms.
The plan is to restrict promotion from next year to ‘high net worth’ clients, deemed as having savings above £250,000 or an annual income over £100,000.
Few advisors understand the intricacies of such products. Taking a wine example, a dozen bottles of Chateau Lafite 1982 has jumped from £3,960 to £35,500 in 10 years and Chateau Petrus 1990 from £10,100 to £62,650. This is great for those who have bought personally but a fund run often by non-experts can be composed of quite unsuitable stocks whose performance is undermined by high management fees.
Some UCITs have been sold to pensioners on low incomes. One advisor persuaded a truck driver and his wife to move their life savings into a high risk UCIT.
Occasionally the veneer of respectability is given by placing such unregulated money in a self-invested personal pension (SIPP) where the rules are not crystal clear on what can be invested. Penalties have been issued but firms have then gone into liquidation. The time to act is now.