Inflation combined with low bank interest has proved to be a powerful driver for savers seeking out higher returns through high-risk alternative investments whilst presenting a tempting target for those unscrupulous individuals intent on either mis-selling an investment to a client or worse still facilitating a fraud.
The “retired with resources” sector has been particularly vulnerable to mis-selling or fraud given their level of savings and often unbridled trust placed in the person encouraging them to undertake the investment.
The Jersey Financial Services Commission (“JFSC”) like the UK Financial Conduct Authority have been particularly active and instigated action against individuals linked to regulated businesses that have breached the Regulatory Code of Practice (“the Code”) that applies to the sale of investments. The Code has, since 2008, gradually been strengthened and undergone several revisions to reduce the incidences of mis-selling. A review conducted in 2013 resulted in the partial banning of commission fees, (for most but not all products) requiring the upfront declaration of fees to the client.
The impact of the tightening of the regime has been largely positive but increased the risk that such misconduct is pushed further underground with rogue advisers inviting clients to invest in non-regulated products, for example an independent financial adviser working for a regulated business but moonlighting and running his own unregulated property development business. In May 2021 the JFSC issued a public statement in relation to an independent financial adviser employed by a local financial business, named Mr Hussain whereby they concluded that “Mr Hussain, either personally or through his UK property development company HFZ Limited, entered into unsecured personal loan arrangements with four clients totalling approximately £1,190,000.00 for the purpose of off-plan property development without complying with his employer’s conflicts of interest policy”. One of the clients, aged 86 and classified as vulnerable, invested the majority of their investible wealth by way of a loan to Hussain’s company HFZ Limited. The JFSC concluded that Mr Hussain lacked integrity, https://www.jerseyfsc.org/news-and-events/mr-gufur-hussain-mr-hussain/
The Code requires that a regulated business must have the highest regard for the interests of its clients and treat them fairly. A regulated business must also act with due skill, care and diligence to fulfil the responsibilities that it has undertaken. In determining how it will comply with the requirements under the Code, a regulated business must consider any relevant guidance issued by the JFSC. Businesses providing investment advice are also required to secure insurance to accommodate any mis-selling by their employees.
Clients generally enjoy close relationships with their trusted financial adviser and are reluctant to accept that they may have been provided with false or misleading information and mis-sold a product. Others do not want to expose their lack of knowledge or are embarrassed by the position they find themselves in. Many are simply unaware that they have been mis-sold an investment product.
Most financial advisers are of course honest individuals with the client’s best interests at heart but when a financial adviser goes rogue, experience has shown that it often has a significant and life changing impact particularly for clients who are retirees and may find themselves suddenly without sufficient resources to see them through to old age and little prospect of securing employment to make good any losses.
The Channel Islands Financial Ombudsman service (the “Ombudsman”) was established in 2015 and provides a valuable service to consumers offering an impartial and cost-effective means of resolving complaints against financial services businesses including determining the level of compensation that should be paid if a complaint is upheld. The remit of the Ombudsman does have its limitations however, for example it does not extend to those that choose to lend money on an unsecured basis to property development companies engaged in off plan property developments or those that simply feel unable to make a complaint to the Ombudsman.
If you are concerned that you may have been mis-sold an investment or fallen victim to a fraud and would like to have an informal discussion on the options open to you, contact Barry Faudemer at Baker Regulatory Services for a free one-hour consultation.