One of our trade publications carried a story this week about a local IFA firm where the directors had also set up a property investment scheme.
The story this week focused on the directors of the IFA firm having borrowed around £2m from the property investment scheme, which had gone bust with £22m of liabilities.
Naturally investors in this investment scheme were unhappy. The IFA firm is also reported to have been wound up after some of the disgruntled investors petitioned for its administration.
Without commenting on the specifics of this case, where the directors will hopefully feel the full force of the Financial Services Authority and the judicial system in due course, it does raise an important warning for investors.
It is generally the case that you should never buy an investment product connected to the person or firm that is giving you investment advice.
In our opinion, the role of the Independent Financial Adviser should always be separate from the investment manager.
Where the IFA is recommending an investment scheme they themselves have set up and manage, there is a clear conflict of interest. Their advice is likely to be anything but impartial or independent.
It is always difficult to see why investors opt for these seemingly ‘too good to be true’ investment schemes.
In some cases it is a combination of a greedy investor and a confident adviser acting as the salesperson. Other times the naïvety of the investor is exploited by the adviser.
Always ask yourself the question, what is my IFA trying to sell me?
Thankfully in most cases, an Independent Financial Adviser truly independent and acting in the best interests of his or her clients.
Unfortunately there will always be examples of financial advisers looking for the ‘next big thing’ and using their trusted relationships with clients to fund it, primarily for their own benefit.
