Only an idiot recommends UCIS funds

Crime and punishment is getting a little medieval in the US this week.

A woman from Ohio who was caught on camera driving her car on the pavement (‘sidewalk’) to avoid a school bus unloading children was ordered by a judge to stand in the same spot with a sign saying, “Only an idiot drives on the sidewalk to avoid a school bus.”

In addition to this public embarrassment, the driver also had her licence suspended for 30 days and had to pay £156 in court costs.

Maybe a similar tactic could be applied in the world of retail financial services.

Regulated firms such as ours have experienced a dramatic increase in the costs for compensating the clients of other firms which recommended unsuitable investments.

Our levies to the Financial Services Compensation Scheme (FSCS) this year have already exceeded £30,000, representing a 50% increase on our 2011 costs for this compensation scheme, and there are more scary investment scheme failures appearing on a regular basis.

Where a financial adviser recommends an unsuitable investment fund, typically an unregulated collective investment scheme, it is right that they are censured for their actions.

A hefty fine and a lifetime ban from delivering financial advice is a good start. Where assets can be recovered to reduce the cost of the Financial Services Compensation Scheme for other regulated firms, this should also happen.

But what we would really like to see, as a way of discouraging advisers from recommending investment schemes they don’t understand, is a dose of public humiliation.

Maybe a stage should be erected at future industry conferences, where disgraced advisers (and former advisers) could stand for a few hours, wearing signs saying “Only an idiot recommends illiquid, highly geared, esoteric and unregulated investments”?

It might result in a corresponding fall in the number of these rubbish investment schemes being sold.

If not, at least it would make the rest of us feel slightly better about stumping up for massive compensation costs when some of our peers engage in stupid behaviour.

Photo credit: Flickr/cogdogblog