Sale of unregulated schemes now ‘pandemic’ in expat markets Friday 16 Oct 2015

Unregulated collective investment schemes are increasingly being sold to retail investors in some expat markets since the FCA banned their sale in the UK last year, an advice firm has warned.

Sale of unregulated schemes now ‘pandemic’ in expat markets

In January 2014, the Financial Conduct Authority abolished the sale of UCIS to 'unsophisticated' retail clients in the UK.

AES International has since seen a 50% rise in the number of UCIS being sold to ordinary retail clients in the expat market, and claimed the problem has been pushed overseas.

It warned the international sale of these unregulated schemes and other esoteric funds is now “pandemic”.

Completely unsuitable

“As the FCA demonstrated when it banned the sale of UCIS funds to ordinary investors, these products are usually completely unsuitable for mainstream investors,” said David Norton, head of investments at AES International.

“The risks they carry are often disproportionate to the potential returns and they frequently become gated because of liquidity problems related to the types of underlying asset which they hold.”

Disastrous consequences

He said AES had come across many expatriates with investment portfolios that are nearly entirely allocated to UCIS and other esoteric funds, often with “disastrous consequences”.

UCIS products often pay high commissions to those selling them, with much of the cost usually hidden from clients.

“It is commonplace in markets where there are high concentrations of British expatriates seeking financial advice, to see unscrupulous offshore financial salesmen looking to exploit lax regulation and a lack of awareness from clients, for their own gains,” said Norton.

“We are trying to educate consumers about the dangers of these products and raise awareness more generally about the damage they cause.”

"It is commonplace to see unscrupulous offshore financial salesmen looking to exploit lax regulation and a lack of awareness"

By Katherine Denham, published on the International Adviser website 15th October 2015