City Scape

UCIS Don’t throw baby out with the bath water

By guest author Damian Davies – The Timebank

Better Safe than Sorry

Advisers don’t like to be linked with ‘miss selling’ scandals, and quite rightly so.

Miss selling is when an adviser incorrectly positions a product to an inappropriate investor in order to make a ‘sale’.

However, take an appropriate arrangement and correctly present it to a suitable investor and you have something very different indeed – good service.

There are many worthy products and structures which in the past have become tainted with the concept of "mis-selling” because of the fact that unscrupulous advisers have misrepresented the arrangements to inappropriate investors. As a result, many advisers stop considering these products completely in order to avoid a potential ‘miss selling’ scandal.

The problem is that by doing this there may be arrangements which may offer an ideal solution to a specific client’s need which are overlooked.

At the time of writing there are some who feel that Unregulated Collective Investment Schemes (UCIS) will also suffer this fate, and thus should be avoided.

This is unfortunate as the UCIS universe provides access to some of the most dynamic investments, which can complement and enhance a client’s portfolio by accessing assets which are diverse, not co-related to standard assets classes and can provide low volatility.

Proceed with caution

Whilst there are potential rewards, quite often providers of these arrangements will ‘over emphasis’ these opportunities so it is important that any recommendation is made only after you have clearly demonstrated two factors.

Firstly is the client suited to this type of investments and has agreed to the perceived additional risk? In simple terms the client should be seen either as a Knowledgeable Investor, a High Net Worth investor capable of accommodating any losses or have a high tolerance for risk.

Secondly, can you demonstrate due diligence has been undertaken on the product and on the provider and any counterparty risk? At the very least, the due diligence should cover the charges, liquidity, the risks and the people involved. Beyond this, care should be applied to the procedures applied to the management of the business. As a Paraplanning company, we are regularly involved with this analysis and have a rigorous process of assessment.

Most importantly, you should not rely on the product provider’s literature and research as this can be seen as bias so your research should be entirely independent. This may seem rather a lot of work but this can either be carried out by your firm or out-sourced to an appropriate party, such as a compliance support business or a firm of Paraplanners.

This will allow you to inform the client of your opinion and explain to them in more detail the risks involved, as well proving the evidence that appropriate research has been conducted to ensure the product is appropriate for the client and their needs.

If the correct approach is completed, then you can benefit from the range of investments that UCIS offer and ensure your clients are benefiting from your Independence.

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