The Financial Services Authority (FSA) has imposed prohibitions on Paul Banfield and Anthony Moss, former directors of Best Advice Financial Planning Limited (Best Advice), a small independent financial advice firm which was based in Surrey. Best Advice was dissolved on 20 July 2011.
The FSA found that weaknesses in the firm's systems and controls had resulted in customers being exposed to the risk of receiving unsuitable advice.
Both Banfield and Moss have been prohibited from holding any significant influence function (SIF), while Banfield has also been prohibited from being an investment advisor and fined £15,000. Moss would have been fined £20,000 but this was not enforced as he was able to provide evidence of financial hardship.
As Moss and Banfield were directors at the firm it was their responsibility to ensure systems and controls met FSA standards. However, the FSA found that at least 22 customers were advised to invest in unregulated collective investment schemes (UCIS) but found no evidence that the firm either understood the regulatory requirements relating to the promotion of these investments or took reasonable care to ensure customers received suitable advice.
In one instance, a customer (Mrs A) was advised to cash in a number of existing investments and reinvest in several UCIS through an offshore bond. Best Advice failed to consider whether Mrs A was eligible to invest in a UCIS or adequately assess her attitude to risk. It also failed to assess her existing investments before making a recommendation, despite Mrs A specifically requesting such an assessment. Mrs A was 87 at the time and more than 80 per cent of her funds were reinvested in UCIS.
During its investigation both Moss and Banfield admitted to the FSA that they did not fully understand the regulatory restrictions on UCIS despite their firm recommending them to customers.
Although UCIS are not authorised schemes there are regulations surrounding their promotion. Therefore people carrying on regulated activities in relation to them, such as giving a personal recommendation, are subject to FSA regulation.
Tom Spender, head of retail enforcement at the FSA, said:
"Last year we published the findings of a thematic review that looked at the sale of UCIS by small firms. In it we set out our concerns that firms lacked awareness of the regulatory requirements, lacked understanding of the market and the risks involved, and were promoting and recommending UCIS to customers who were not eligible for them. This case firmly fits in with those findings.
"UCIS are rarely suitable for retail investors. Many are characterised by a high degree of volatility, illiquidity or both - and are therefore usually regarded as speculative investments. Even when they are recommended they are unsuitable for anything more than a small share of a portfolio.
"We want firms to read the details of this case, along with the findings of our review and other recent publications on UCIS, and learn from them. We've seen a proliferation of firms offering UCIS so it is absolutely vital they do their homework before recommending these schemes to investors."
As well as both being directors of Best Advice, Moss was also the firm's compliance officer, while Banfield was also its investment adviser.
Prior to its dissolution, the liquidator of Best Advice contacted a number of customers that the FSA had identified as potentially having been advised to invest in UCIS. These customers were advised to contact an independent financial advisor and/or the Financial Services Compensation Scheme if they had concerns about the advice they received.
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