This week, we've been busy vetting some rather complex, IHT-planning investment products for ValidPath Members.
Of particular interest has been the Time: Advance
product which was launched in February 2013. It's the kind of thing one now expects from companies such as Downing, Octopus, Stellar etc. It's reasonably complex. The brochure is fairly meaty. There are many pages of smallprint which one suspects that most normal clients would refrain from reading. There's a whole page of risk-descriptions which is buried on page 14 (of 16) whereas the 'Key Benefits' are on page 7. There's a moderately complex intermediary disclaimer, where you get to sign your life away.
Now, please read me aright! I'm not against the use of such complex products for the right kind of client
. As far as I can see, Time are a reputable firm with a decent pedigree (ex-Close). I have no reason for thinking that the product itself won't work, and in fact Time appear to have taken some care over the kinds of liquidity issues which tend to afflict these schemes.
I am bothered by the documentation, by the way it is laid out.
Given that 'risk' is not an insignificant issue with these schemes, the honest
thing would be to place the disclosures in the brochure at around the same place where 'benefits' are dealt with. The way the brochure is constructed forces
the intermediary to ensure that he or she has worked through it in order to cover the required bases. Perhaps this is not an unreasonable thing to expect, given the nature of the beast.
But then, when one gets to the application form, there is a clear focus on the adviser
signing a disclaimer about the product, whereas the only 'due diligence' element the investor
signs up to is a small paragraph on the backside of the form. If I were choosing to advise on such things, I would wish the client to be required to read a duplicate summary of the key risks, tick a box to confirm that he or she has read it, and then sign the application.
Now, perhaps that approach would be overkill. On the other hand, our experience of the way in which the FOS goes about handling complaints in connection with these more complex schemes, indicates that you simply cannot be too careful. If I were designing the paperwork, I would do so in such a way that the client is required to tick each disclosure separately, and sign to confirm that he has read and understood it. Even that may not be enough - the standard getout of jail free clause these days is that, "perhaps the client did not understand the disclaimers", and when the FOS seeks to apply that reasoning to complainants who are lawyers, then you should be pretty sure that the collapse of Western Civilisation is imminent.
At ValidPath we try very hard not to restrict our Members' choices, as we believe unequivocally in the value of independent financial advice. We do, however, counsel great caution in the use of complex products with higher associated risks. ValidPartner members can access our updated guidance on this topic by clicking here.