Advisers further have to meet a certain standard by passing relevant vocational exams in order to qualify their recommendation – all in a bid to put the customers’ interests at the forefront of any suitable financial decisions made.
Unethical operators
Outside these developed markets exist many unregulated financial areas where very few requirements are imposed on both the consulting company and the advisor – making it easy for almost anybody to set-up such business and give advice for their own personal gain. So just like any business or industry there is good and bad. A lack of regulation or monitoring in certain juristsictions make them vunerable to attract unethical operators.
Many exercises in these areas can be conducted in order to direct investor capital in an advantageous manner for the advisor at the expense of the client. The Beazley QROPs disaster is a recent example of where investors are now potentially facing heavy charges from HMRC.
Financial institutions are also burned by such practice because IFAs take upfront commissions and then cancel policies, reduce future premiums or in some cases just dissappear – despite the clamp down from institutions and the large claw-back provisions they put in place.
Whilst the number of companies involved in unethical activity is shrinking it’s important that if investors are doing business in a juristiction where regulation is non-existent that they at least select a company that aligns itself with a neighbouring regulatory framework or has operations in regulated areas.
Asking probing questions of the individuals they are dealing with, making sure they have industry experience or have relevant qualifications, asking questions of their principles and their experience and indeed asking if they are part of any recognised industry trade associations who can verify their credentials are becoming more prominent inquiries from potential investors operating in these unregulated regions.
Self-regulation
IFAs should therefore adopt self-regulation as a measure to ensure clients are recieivng the most prudent advice in their best interests until satisfactory statutory requirements develop within the countries they operate. There should always be a certain amount of consistency in advice received even though no two advisers will ever recomend exactly the same holdings – this will benefit the IFAs as in the long-run clients will naturally return to them for repeat business.
To summarize, investors are becoming increasingly wary and informed that the majority of commission in financial services business is made at the front-end meaning once they have signed the papers there is little in the way of recourse should they decide to change strategy.
Despite buyers requiring to do their own due diligence, after doing so they will seek solace in the qualified advisors that do exist and voluntarily comply with the strictest financial regulations in their particular region regardless of not being required to do so – which should spark other IFAs into self-regulation and improved industry standards. This would ultimately reduce the bad blood experienced in the trade over previous decades and wipe out once and for all illigitimate practices that go on – meaning those opting away from self-regulation will lose out and be in the minority with less likelihood of tarnishing the offshore IFA industry as a whole.
