AES said in a statement that consumers may not be aware that products sold by these companies are subject to European rules which may differ from those set by the Financial Conduct Authority (FCA).
It said that consumers using one of these advisory firms should also be more aware they have no recourse to the UK Financial Ombudsman Service.
“By bypassing the strict rules and regulations we have in the UK, these companies are putting investors at risk,” said Sam Instone, chief executive of AES International, a UK regulated firm which advises British expatriates across Europe and the Middle East, said.
Under the European Economic Area’s (EEA) Freedom of Services rules, financial firms which are regulated in one member state are permitted to sell financial products in the other member states.
When selling financial products they are subject to the Markets in Financial Instruments Directive (Mifid), which aims to harmonise rules surrounding the selling of financial products across the European Union. A firm could also passport under the Insurance Mediation Directive (IMD), which includes advice on insurance-investment products.
Firms using the Freedom of Services passporting system will also have to comply with Mifid II when it is implemented in 2017. An advisory business passporting under IMD will need to presently comply with IMD 1.5 in the near future and thereafter with the Insurance Distribution Directive (IDD),
Under EEA rules if an investor has a problem with the services from companies authorised in another EEA state they are covered by the compensation schemes that operate in that country and would have to seek redress through that scheme.
The FCA said its register of financial firms clearly states whether a firm is EEA rather than UK regulated and the information is publicly available.