The UK’s new financial regulator has ordered a ban to all financial advisers who recommend risky, unusual or complex investments to ‘ordinary’ clients.
From 1st January 2014, only sophisticated or wealthy clients, defined as those who earn above £100,00 per annum, or have more that £25,000 to invest, will be eligible to legitimately receive any promotions regarding unregulated collective investment schemes such as fine wine, overseas property and traded live policy settlements.
Even though there are some restrictions in terms of whom these products can be marketed to, the regulator found that a striking number of retail investors have already put in approximately £4 billion into unregulated schemes and many may not be aware of the risks involved.
The new financial regulator, The Financial Conduct Authority (read more here) has introduced this restriction due to high-profile scheme failures, leaving retail investors facing a high volume of monetary losses. The marketing ban on risky investments is part of the financial regulator’s tougher approach to protecting consumers and stepping in at an earlier stage as it will make it harder for retail investors to find information and access the products.
The FCA believe that the limitation of marketing such products to only the wealthiest and most experienced investors is a balanced approach as retail investors will still be able to access a range of tax-incentivised collective investments including venture capital trusts, enterprise investment schemes (EIS) and real estate investment trusts.
Therefore, by authorising and regulating investment schemes it will ensure that investor losses are kept to a minimum.
There is also a ban on advisers accepting commission, further deterring them from promoting and selling risky investments.
Companies and advisers who sold unregulated collective investments schemes who did not have the appropriate risk profile to warrant the sale are now facing action from the FCA. Any investors who are concerned that they have been sold an unregulated investment should speak to their adviser or check the marketing of the product they bought. If the risks were not explicitly made clear, then they can make a complaint to the firm involved.
