Fresh concerns raised about UCIS models

Fresh concerns raised about UCIS models




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The latest report published by the Financial Ombudsman Service (FOS) has confirmed a rise in the number of complaints referred to them involving the sale of investment into Unregulated Collective Investment Schemes (UCIS), a funding model utilised by a number of lenders in the bridging industry.

The complaints revealed advisers’ “unsatisfactory record keeping and poor evidence about the classification of the funds” as well as “little understanding of how these funds – which may include overseas property and investments such as forestry plantations – should be marketed only to restricted classes of investors and not to consumers in general.”

Yet despite this advice, the FOS has “seen cases where consumers eager to take advantage of what seemed to be an exciting investment opportunity – at a time when returns on traditional savings and investments were disappointing – have not always taken the time to reflect on the risks involved.”

This complex investment model is further explained by Alistair Mawdsley, Director of a UCIS fund utilised by some bridging lenders, Connaught Asset Management. He emphasises that these investment platforms are a highly specialised offering and as such are not suitable for all investors.

Alistair said: “It is the responsibility of advisers to not only carry the correct permissions, but to ascertain in each individual circumstance whether it is a suitable solution for their clients’ needs. They can be an extremely useful tool for some investors, but it is vital that advisers take the necessary care before suggesting them to clients.

“There may well have been an increase in complaints, but I would suggest that this has probably been from a very low base as UCIS is a relatively new concept that is only just coming to the attention of the regulator and the Ombudsman. It is also worth noting that complaints have risen across the board in line with challenging investment conditions. A fund being regulated doesn’t make it immune to the same issues facing unregulated funds and at Connaught we take rigorous measures to ensure that only a small part of a client’s portfolio – typically less than 5 per cent - is exposed to UCIS funds.”

Evidence of the FSA’s intent to crack down on the mis-selling of such funds can be found in the recent fine made against an adviser, Francis O’Donnell of P3 Wealth Management Limited (P3), £60,000 for advising his clients to invest in UCIS which were clearly unsuitable.

According to the FSA’s press release, it found that around two thirds of O’Donnell’s customers invested over 75 per cent of their known available funds into UCIS and other non-mainstream investments – a much higher percentage than the 5 per cent exposure suggested by Alistair.

Alistair added, “It is not for us to comment on the penalties imposed by the regulator, but we welcome anything that makes the schemes as compliant and transparent as possible. People may wrongly assume that the ‘unregulated’ part of the acronym means the schemes lie outside any jurisdiction, but they are not unauthorised.

“UCIS can be confusing to uninitiated advisers and that is why we regularly run road shows to help intermediaries gain further knowledge of the sector, the promotional restrictions that apply and how they should look at the UCIS market as a potential investment alternative for suitable clients.”

Further reiterating these sentiments, Yasin Patel of Mayfair Bridging, a bridging lender who utilises part of the Connaught Fund as well as a bank line, said: “Mis-selling should never be tolerated in any circumstance and there should be a body to police the UCIS model thoroughly. In the long run this will protect bridging lenders, as well as investors. However, Connaught does a very good job in promoting investment to the right kinds of individuals.”

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