Getting Investment Advice Case History

Miss G filled in a form to enter a prize draw competition. She wasn't surprised that she didn't win but she was surprised to receive a series of phone calls from a company who tried to persuade her to invest in the futures market. Futures contracts are a way of gambling on the price of certain commodities. They are highly risky and are suitable only for investors who can afford to lose money. Only the most irresponsible investment adviser would suggest that a private investor of limited means like Miss G should consider them. Yet she was plagued by phone calls telling her that she could double her money in a fortnight. She weakened and sent a cheque for well over £4,500.

A couple of days later the company rang her again, informing her that her investment had nearly doubled - but they advised her against taking her profit 'as the time wasn't right'. The salesman rang again the next day, saying that her investment had gone down to less than its original value. Miss G decided to cut her losses before things got worse, but she was told that her money had already been reinvested. She was told to send more money but wisely refused. The following day the salesman rang a third time and said that the original investment was now worth less than a third of its original value and too derisory an amount to re-invest, so he sent her that amount back.

When the SIB receive complaints about such high-pressure sales techniques - charging such high commission that clients are unlikely to make a profit, and ignoring clients' instructions - they can suspend the company from trading and apply for it to be wound up as 'not fit to carry on the business of broking in futures and options'.

For a business to be authorised it must be 'fit and proper' and must meet various solvency requirements. It must carry out its business according to the rules of its SRO, RPB or the SIB. If a business breaks the rules, it will be subject to various disciplinary procedures and, if the breach is serious, it could have its authorisation taken away and be compulsorily wound up. If you lose money through an investment business's fraud or negligence, and the firm has gone into liquidation, you may be covered (at least to some extent) by the compensation scheme set up under the Act - see p. 165 for details.

You can check whether or not an investment business is authorised, and by which SRO or RPB, by consulting a register, kept and updated by the SIB, either through Sky TV (available in most main libraries) or by phoning 01-929 3652. An investment business must also make clear on its stationery by which SRO or RPB it is authorised.


More On Financial Advisers

As a minimum, an adviser will need information about all the following areas in order to give you sound advice: your age and health, whether you're married, single, separated or divorced, the number and ages of any children and any other dependants, the size and make-up of the family's income, possible changes in your financial circumstances, your regular financial commitments, your tax position, your home and mortgage, your existing insurance, pension arrangements and investments, if any, your investment aims, how much you have to invest, how much access you want to your money, and what risk you... see: More On Financial Advisers


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