The UK Financial Services Authority is aiming to crack down on the selling of high-risk investments such as fine wine to inexperienced investors.
Risky wine investments: ‘potential for customer detriment’
The FSA has published proposals to ban the promotion of Unregulated Collective Investment Schemes (UCIS) and similar products to the vast majority of retail investors in the UK.
It proposes that investments including traded life policy investments, fine wines, crops and timber should be sold only to the most sophisticated high-net-worth individuals.
Currently, UCIS can be promoted to ordinary retail investors; the FSA says it is clamping down because current rules allowing advisers to assess the ‘suitability’ of such risky products before selling them are not working.
Investments are being sold to people who are not aware of the risks and have no access to any compensation if they fail.
FSA spokesman Chris Hamilton told Decanter.com there were numerous examples of unsuitable wine investments being sold, and pointed to an investigation earlier this year which estimated fine wine investors had lost £100m over four years by entrusting their savings to failed wine companies.
These include Beaumont Vintners and Bordeaux UK, which collapsed this year owing creditors an estimated £1.5m and £10m respectively.
The FSA said it found ‘only one in every four advised sales of UCIS to retail customers were suitable, taking into account the customer’s needs and requirements. The FSA found that many promotions breach the restrictions and only a minority of advice is suitable.’
It said it is acting ‘because of the high levels of unsuitable advice it has uncovered and the potential for customer detriment.’
Hamilton stressed that private individuals should be free to make any investment they like without the advice of a financial advisor.
The proposals are under consultation until mid-November, when they will go to review. The new rules, which which financial advisors will have to adhere to, are expected in the first quarter of 2013.
Written by Adam Lechmere