For professional financial advice businesses, the thorny issue of regulation is a daily reality.
Firms can find themselves in hot water for acting without the necessary permissions, and perhaps more acutely, clients are exposed to the ever-present threat of scams, particularly when it comes to investments.
Therefore it is important for new advisers wanting to enter the profession to have all the necessary regulatory approvals in place before starting out, as well as to stay alert at all times to spot and stop fraudsters potentially targeting your clients.
Starting out
Before you start out, take time to properly set up your business and practice.
We know the majority of mainstream financial activity in the UK is monitored and supervised by the Financial Conduct Authority, and its handbook contains all of the rules and guidance which must be followed by practitioners.
Providing services in the financial sector in England is likely to be a 'regulated activity', subject to some very specific exclusions.
We also know that if you are carrying out a regulated activity (like general financial advice), then you will need to be an 'authorised person'; which essentially means that you have satisfied the FCA's criteria and that you are formally authorised and regulated by the FCA.
For example, managing an investment portfolio, arranging investment deals and providing advice on investments or mortgages are all regulated activities for which you must be authorised by the FCA.
It is a criminal offence to provide a regulated activity if you are not authorised, and the FCA's recent prosecution of Lee Maggs highlights the force which these regulations can have – each of the charges against him come with potential prison sentences of up to two years.
There is also a range of other criminal laws which can be applied by the FCA and law enforcement agencies to pursue unregulated operators and to prosecute cases of fraud.
To protect your business, make sure you have a standard engagement document which you can replicate easily with each client, and make sure it covers your duties and responsibilities, what you promise to do, what limits you have on your ability to give advice and your charging rates.
Limitation of liability clauses may be helpful to reduce any ultimate liability should the worst happen, but those clauses will not necessarily protect you from any wrongdoing at all (whether deliberate or inadvertent).
You are also going to have to have your own professional indemnity insurance with a suitable level of financial cover.
Guarding against fraud
It is important to approach all of your potential investment opportunities with a positive but cautious approach.
There are too many stories of people being convinced, directly or through their financial advisers, to provide money to unregulated and unverified companies and then finding out that they have handed money to a sophisticated fraudster.
