DEC 2012/JAN 2013 |www.opp-connect.com


FSA


OPP RESPONSE | 11 Expert Comments


We sent our FSA response to some experts in the industry – Brad Lincoln, CEO of Best International (www.bestinternational.co.uk) had this to add: 1. I strongly agree with a pro-active and accessible perimeter guidance


team that can respond when a product provider or promoter wishes to develop a product and wishes to ensure that it does not contravene promo- tional rules. 2. I think that IFAs have just spent a great deal of time and money getting in


order for RDR in which the FSA requires them to give ‘whole of market’ advice. Representatives of the FSA have, in training workshops and briefings,


told IFAs that to not have the ability to evaluate and recommend alterna- tive products and non-correlated products for their clients would be wrong and evidence that they are not taking their role as whole of market advisors seriously. As a consequence a number of IFAs have implemented relationships,


In our view: a. The key step that is missing is the step you say you are not intending to take at the moment: assessing the competence of advisers. i. Without this either IFAs have to


be emasculated to the extent that they cannot give anything but the simplest advice to anyone other than the rich or any rules you make limiting the scope of their right to advise are likely to be implemented as badly as it appears your existing rules are implemented. ii. IFAs need to be able to give comprehensive advice in the areas where they are qualifi ed to do so and to those they assess as appropriate. They can be given guidance as to good practice – and be disciplined if they deliver bad practice – but they must be able to advise. Otherwise, what is the point of the whole IFA system? b. As far as the world of international real estate and real-estate derived products are concerned, there appears to be a lack of understanding within the FSA of the international property market place and the nature of the products on offer. i. The market is, essentially, a cross border market and we need to be clear about the circumstances in which your rules will apply to any individual in any jurisdiction. ii. There are, probably, half a dozen or so product classes that can, at the moment, potentially fall within the scope of UCIS and, in future, could fall within the new rules, which I will call UCIS+. These include the ‘share in a hotel’ product we have already mentioned.


1. More than anything else we would ask for guidance as to what is legitimate and what is not. This is not because the industry is a bunch of cowboys wanting to fi nd loopholes or circumvent the rules. On the contrary, it is because the industry (or most of it) wants to be responsible and to offer buyers products legally, suitable to their needs and on the basis of full disclosure. 2. The industry would be keen


to work with you to develop those guidelines, so bringing to bear its practical experience in a fi eld alien to many at the FSA. iii. We would like an easy method of


clarifying any grey areas before products are launched or as soon as the issue is seen to arise – something such as your perimeter guidance team on steroids! iv. We are concerned about passing rules of potentially far reaching international application (such as the obligation on a hotel operator in (say) Egypt to ensure that those FSA authorised fi rms promoting his product in the UK are complying with UK law) when such a responsibility is


“What is the point of having authorised and regulated fi nancial advisers if they cannot advise?”


almost impossible to comply with and, probably, unenforceable in any event. In other words, we would suggest that the rules be limited to making us do what we can do and not attempting to make us do the impossible


v. We are concerned, in particular, that the cross-border aspects of these rules – as they affect our industry – are made the subject of clear written guidance, preferable written after consultation with the industry. We hope these observations are of some use. We are not specialists in this fi eld but we are increasingly affected by it. We are as keen as you are to protect gullible investors from being parted from their hard earned cash by greedy and unscrupulous operators but we do not want the steps needed to achieve that aim to impact unduly on perfectly normal and sensible products and transactions.


If anything in this document is


unclear, please do not hesitate to contact us.


training, and commercial relationships to ensure they responsibly evaluate non-correlated products. In part they have done so because of the pressure of requests from clients. We are seeing IFA firms who will not review alternative products losing


clients on a daily basis. To make it practically impossible for an IFA to review these products and advise on them based on the client’s circumstances (rather than purely on a muddled and confusing characterisation of the product) will (and is already) leading to more and more clients seeking products from unregulated and unauthorised sources – frequently overseas. This pressure is fed because of the extremely poor performance of correlated, regulated and authorised products. The perfect storm of poorly performing mainstream products and pres-


sure on IFAs to only recommend these products is already leading to retail clients seeking advice and products from unauthorised promoters, and this legislation risks increasing that. Our suggestion is that all products that have a significant investment mo-


tive and with investment mentioned in the promotional material associated should be reviewed and have risks warning clearly placed in all contractual and pre-contractual documentation. An authorised Corporate Finance Advi- sor should carry out such review for professional clients. Then an IFA should feel comfortable to recommend that product to any


suitable client confident that the IFA and the Client have seen very clear risk warnings. This would mean that retail clients would be driven towards IFAs rather than away from them, and that advice will be given to clients based on clear explanations and risks, and according to their personal circumstanc- es rather than arbitrary definitions of wealth. It also means that all reputable products will have undergone verification by a suitably qualified and author- ised Corporate Finance specialist, and the vast majority of clients will go to regulated advisors and therefore be protected in line with TCF principles and PI cover of the advisor. This will be far batter than hoping that increasingly confusing definitions


will help the matter. In my experience, where more and more confusing definitions are applied, the disreputable find ways to circumvent them, and the reputable refuse to deal with the rules – driving the retail clients into the arms of the disreputable. My feeling is that the consequence of the currently drafted consultation


will be that while the wealthy will get professional advice and be protected, the standard retail client will have no professionals willing to seriously review their circumstances in the UK and will be left to fend off the cold calling companies based outside the UK. 3. The definition of UCIS will be further muddied when in July 2013 prod-


ucts regulated and authorised in Europe will be regulated in the UK. Some of these products which are currently regulated in (for example) Germany or France, are currently called UCIS in the UK. This means that currently retail clients will be offered non-correlated products of a disreputable nature, but cannot be offered reputable products properly constructed in Europe. This is xenophobic nonsense and will be worsened by this consultation paper. Contact Brad Lincoln at brad.lincoln@bestinternational.co.uk or phone +44 (0)845 130 9022


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