You wouldn’t sell it to your mother! The problem of rogue IFAs in Spain

By James Bryce

“MANY people don’t come forward out of embarrassment,” muses John Parsons, the joint founder of the Costa del Sol Action Group.

“We deal with hundreds of people who have been defrauded but that’s just the tip of the iceberg. Everyone I speak to knows someone who is a victim.”

We are discussing the problem of unregulated independent financial advisors (IFAs) and how they prey on unsuspecting expats living in Spain.

There are sadly far too many of them and Parsons knows from bitter experience what it feels like to be conned by a rogue advisor, having been mis-sold a financial investment product over a decade ago.

His response was to set up the Estepona-based action group along with fellow victim David Klein in a bid to prevent other expats suffering the same fate.

“I sat here one afternoon and said this is so dreadfully wrong and decided I had to act,” he explains to the Olive Press.

The group offers advice to those who have lost money after being sold investment products, which were totally inappropriate to their needs.

As the name suggests, IFAs are professionals who offer independent financial advice to their clients and recommend suitable financial products from the whole market.

In the UK, IFAs are regulated by the Financial Services Authority (FSA) and must meet strict qualification and competence requirements.

An IFA in the UK can apply for a ‘passport’ from the FSA, allowing them to offer certain services in any country within the EU.

In addition to this companies are able to register with two Spanish bodies, the DGS or the CNMV, over here.

However, rogue IFAs often snare their victims by claiming to be regulated when in fact they are not, or by selling products which are not included in the terms of their passport.

This means that expats have no way of making a complaint or claiming compensation if something goes wrong, with many only realising when it is already too late.

But while the rules surrounding regulation can be confusing, the human cost of unregulated IFAs is far more clear.

“The human toll is dreadful,” insists Marbella-based financial investigator Gwilym Rhys-Jones.

“You hear of people having heart attacks and suffering from stress as a result of the anxiety caused by losing so much money.

“It has always been easy pickings down here because there are so many retired people with time on their hands and money in the bank.”

Parsons agrees: “Most of these IFAs only see the commission they are going to earn and don’t give any thought to the human cost of their advice. They are only interested in the money.

“Often we have written to the financial advisors and said ‘would you sell the same products to your own mother’?”

Regardless of what the answer is, it seems the IFAs will soon have to think twice before attempting to fleece expats out of their hard-earned cash.

The EU is now investigating ways of helping victims of unregulated advisors and is considering setting up an ombudsman, as reported in the Olive Press last month.

It comes after Parsons sent a dossier of information to Brussels highlighting the current problem, on behalf of the Costa del Sol Action Group’s 1,000-plus members.

“It has to be looked into and there has to be regulation whereby the man on the street doesn’t have to flounder around to see what he can do,” demands Parsons.

“As far as the Spanish regulators are concerned, I would say ‘disinterested’ is the most appropriate way of describing them.

“We have tried many, many, many times to advise them of rogue IFAs who are operating in Spain but they never respond.

“I think they presume that because it is British mis-selling to fellow Britons it is not their problem, but of course it is.”

Rhys-Jones is equalling scathing of the Spanish authorities.

“The regulator in Spain is useless, a totally toothless tiger,” he exclaims.

“They do nothing, they just don’t bother and haven’t done so for 20 years.”

But he is also sceptical of the EU’s motivation to step into the breach.

“I don’t think an ombudsman will make much difference. Although I don’t expect the EU to make any real effort to set one up,” he adds.

As for advice as to how best to avoid the hazards of dealing with unregulated financial advisors, there is plenty of it.

“Deal only with advisory firms that are licensed and quote full regulatory information in all marketing material,” advises Michael Lodhi, from the European Federation of Financial Advisors and Financial Intermediaries (FECIF).

“It is my understanding that it is a legal requirement for all marketing material to carry full regulatory information, licence numbers and professional insurance policy numbers,” he advises.

Paul Stanfield, Chief Executive of the Federation of European Independent Financial Advisors (FEIFA), insists that one should always check the advisor’s regulated status.

“The first approach should be to ask them to provide information on their regulatory status and to then check this with the regulator in the UK or Spain,” he says.

“This information should include the type of licensing held and the relevance of this to the clients’ circumstances,” he adds.

Parsons agrees it is crucial to make sure the adviser is regulated and also suggests seeking a second opinion and to avoid rushing into a decision.

“Don’t just take the advice of one financial adviser,” he cautions.

“If you are not sure about the figures being banded around, get them checked out by someone else.

“Any amount of time spent researching your options and making sure the person you’re dealing with is regulated is time well spent.”

But despite the odd bad apple in the basket, Parsons is keen to stress that the majority of IFAs operating in Spain are fully compliant with the law.

“The situation is not as bad as a decade ago,” he insists.

“When we set up the group in 2001 I would estimate the majority of IFAs were unregulated but I think the majority are legitimate these days.

“There are some very good financial advisers out here in Spain, the key is finding the good ones.”

Checklist to invest

Many Independent Financial Advisors (IFAs) are regulated by the UK’s Financial Services Authority (FSA) are allowed to operate in Spain under the terms of a ‘passport’ scheme.

There are two types of passport available, depending on the type of service being offered:

1. The Insurance Mediation Directive (IMD) – regulated by the DGS.

As the name suggests, this covers insurance-based products including; life insurance investments, insurance policies and pensions and annuities.

2. The Markets in Financial Instruments Directive (MiFID) – regulated by the CNMV.

This covers stock market-based products including; shares, corporate bonds and collective investments.

It is important to note that some fully-regulated IFAs have been accused of selling products which are not covered under the terms of their passport.

In order to be covered should things go wrong, it is crucial to check not only that the IFA is fully regulated, but also that the products they are offering are covered under the terms of the relevant passport.