How TCF visit led to ban and fine for IFA over UCIS sales – What would have been an ordinary visit as part of the Financial Services Authority’s (FSA’s) Treating Customers Fairly (TCF) programme led to the latest enforcement action against an IFA for mis-selling unregulated collective investment schemes (UCIS).
The FSA yesterday banned a fined IFA Patrick O’Donnell £60,000 for selling the products, as well as other unregulated funds.
Although it accepted he may have honestly and sincerely believed he was doing the right thing, the FSA was damning in its evaluation of his conduct, deeming him unfit to continue in his role.
The FSA said O’Donnell demonstrated
- a fundamental lack of understanding of the restrictions and risks associated with promoting UCIS to retail customers and demonstrated he is unable to take adequate steps to ensure customers receive suitable personal recommendations.
- In the interests of consumer protection, the FSA deemed it appropriate to impose the prohibition order.
It also said he poses a serious risk to customers generally in light of his admission that he completed investment applications on behalf of two customers after he had submitted a variation of permission application in which he agreed that P3 would cease conducting UCIS business.
The FSA concluded that he is not fit and proper to perform any functions in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm.
The timeline of events
- 3 August 2004 – O’Donnell’s firm, P3 Wealth Management, approved by the FSA
- 15 December 2008 – O’Donnell’s first UCIS transaction takes place
- September 2009 – O’Donnell selected to take part in FSA’s TCF assessment programme
- 27 October 2009 – FSA visits P3 and immediately raises concerns about the suitability of advice
- 13 November 2009 – FSA asks P3 to make an application vary its permission to cease trading UCIS and other unregulated schemes. P3 agrees.
- 30 November 2009 – O’Donnell’s last UCIS transaction
- 4 December – O’Donnell finally submits the variation of permission form, after repeated requests from the FSA
In numbers
- £60,000 – O’Donnell’s fine
- 2+7 – The FSA principles O’Donnell was found to have breached
- £185,036 – The amount of UCIS and unregulated business O’Donnell allowed to be completed even after he had agreed to vary his permission to cease conducting this sort of business
- 150 – the number of clients O’Donnell discussed investing in UCIS with
- 57 – the number of clients who ended up being invested in UCIS
- 14 – the number of clients who were also invested in other unregulated schemes
- 1 – of the 15 customers from nine client files the FSA looked at, only one was not a basic rate taxpayer
What would have been an ordinary visit as part of the Financial Services Authority’s (FSA’s) Treating Customers Fairly (TCF) programme led to the latest enforcement action against an IFA for mis-selling unregulated collective investment schemes (UCIS).
The clients
- Customer H
- was retired on ill-health grounds and dependent on state benefits and, as a cautious investor, was seeking to reduce her exposure to equities, with the objective of providing her husband with benefits in the event of her death.
- She had no life assurance or savings, while her husband earned £24,500 as a baggage handler and also had no savings or life assurance. She had an occupational pension. Customer H invested 94% of her known assets in unregulated schemes.
- Customer R
- was employed as a fork-lift truck driver, earning £25,000 a year, and his wife as an administrator, earning £7,200, and the couple’s sole investment comprised a protection plan for their repayment mortgage.
They were advised to invest the entirety of their known pension funds into unregulated schemes and UCIS.
- Customer F
- was an administrator earning £8,000 per annum.
- Her husband was a higher-rate tax payer and together they owned 44 buy-to-let properties, in addition to their principal residence.
- They also had existing investments of £100,000.
- Her attitude to risk was variously described as low, medium, medium/high and high and a suitability letter for her SIPP stated she wished to reduce her exposure to equities as she was of the view that her money would be safer in cash in the short term.
- She invested 84% of her known funds across three unregulated funds including one UCIS.
- Customer S and his wife
- separately invested in UCIS, although there are no documents on the wife’s customer file to record her income, objectives, experience, attitude to risk or why this investment was suitable for her. Previously employed with a large company and recently made redundant, he had a life policy and an occupational pension which he transferred into a SIPP with Company P in order to access the unregulated funds.
- He was advised to place 77% of his known pension funds into two UCIS funds and an unregulated fund. The investment report stated that Customer S was not a sophisticated investor but was satisfied he understood the risks of these investments.
- Customer T
- earned £10,400 per annum and had one dependent son. She was 39 years old, her only existing investment was a personal pension into which she paid £125 per month. She consolidated her three personal pensions on Mr O’Donnell’s advice and.
- Although he initially advised that a SIPP would not be appropriate as she would not utilise the wide range of funds, two months later he advised her to transfer into a SIPP with Company P to permit her to invest in an unregulated fund.
- Customer A
- earned £29,000 per annum, had two life policies and invested over £25,000 in UCIS.
- All documentation on the customer file related to her husband.
- There was no record of her attitude to risk, investment objectives or financial circumstances.
Read more:
http://www.fsa.gov.uk/library/communication/pr/2012/063.shtml
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