Article by Phil
The Financial Conduct Authority (FCA) has once again reminded firms that they are responsible for ensuring that all their financial promotions are compliant especially when it comes to financial planning.
This particularly covers social media posts and the use of so-called fin influencers online. It is the firms ultimately benefiting from the promotions who will bear the responsibility. But the FCA has said that fin influencers acting without regulated approval would be committing a criminal offence. With over 10 million search posts online for financial services, there is clearly a lot of information out there. Some of it undoubtedly not regulated and misleading.
The number of scams tell you how big an issue it is. In a Freedom of Information request to the Police, the Pensions Management Institute uncovered some alarming figures. Since 2020 there have been almost 100,000 victims of investment fraud, who together have lost over £2.5 billion. That was at an average of over £25,000 per incident. Why isn’t this being more widely reported?
The most common type of investment fraud is so called “boiler room” fraud where non-existent stocks are sold by cold calling. So, rule number #1 is never talk to anyone who cold calls you. It’s illegal to cold call for investments, so you know immediately that it’s a scam. The second most common fraud is through Ponzi or Pyramid schemes. These are schemes which pay out unusually high returns on investment. Payments will be made until the pyramid money runs out and the whole scheme collapses, leaving everyone out of pocket, because no investments were ever made. Please be careful.
Social media companies are also being forced to take more responsibility for ensuring that advertisers and advertising for financial planning products is coming from properly authorised sources. Twitter, Bing, Google, Facebook and Tik Tok have all changed their policies recently. Facebook for example, now checks that firms are authorised by the FCA before allowing any adverts to be places. In part this is what the Online Safety Bill is trying to assist.
But it is early days and there are lots of examples of bad practice online. Financial promotions should contain risk warnings, especially in the case of high-risk investments like crypto currency promotions. I know from personal experience that this is not the case. Having made a crypto enquiry last year to understand how the process worked. I am still be bombarded by calls and e mails encouraging me to invest. The latest e mail told me how much I would have made if I had invested last year. This is a classic case of promoting FOMO (the fear of missing out) which drives many impulsive online decisions. I can say that the risk warnings in these approaches to me are not clear, nor is it clear who is actually trying to deal with me. You may have had similar experiences. The FCA certainly has its work cut out on this front.
In more traditional media, St James’s Place (SJP) has followed up on its recent bad press with some TV advertising.
It’s first adverts premiered during the prime-time England v Scotland rugby fixture on ITV. Aiming for maximum impact. But SJP has also launched a sponsorship advertising arrangement with the Sky Arts channel. Clearly pitching itself at the art loving demographic. Perceived to be wealthy. Nevertheless, it’s good that adverts for financial planning advice are getting into the mainstream media. It’s a positive message, so well done SJP.
Staying on the topic of SJP. Law firm AMK Legal are now bringing over 20,000 claims against SJP for failing to provide clients with an annual review. They are claiming refunds of the SJP charges which can run into thousands depending on how much clients have invested. The FCA however are urging clients not to use AMK Legal to make a claim, or any other Claims Management Company (CMC) but to go direct to SJP. CMCs are regulated by the FCA and can only charge a maximum of 30% of any compensation. By contrast, AMK Legal are not a CMC, they are a firm of solicitors regulated by the Solicitors Regulatory Authority (SRA), who have no cap on fees. So AMK are able to get away with charging 48% of any compensation. Why would an SJP client use AMK Legal and give away half of their compensation? I don’t understand it, but apparently 20,000 clients have. Then again, some people ask why anyone uses SJP in the first place, given their high charges and poor performing funds.
Another good question.
