What is an Unregulated Collective Investment Scheme?

An Unregulated Collected Investment Scheme (UCIS) is an investment type which falls outside of the FCA regulation in respect of items such as spread of assets, cash reserves, liquidity, dealing frequency and limitations on borrowings.  Whilst not always the case, the traditional model is that a UCIS is a “high risk, high reward” investment in which the returns can be several times those offered by traditional investing, but the chances of losing the entire investment are high.

In a UCIS the investor’s funds are pooled together with other investor’s funds to purchase or invest in non-traditional assets.  The investor will either own a certain number of the assets or will own shares in the asset in the case of larger assets.  If the investment value goes up then the investors will receive returns.  The exact level and rate of return will vary from UCIS to UCIS.

It is important to know that there is an incredible variety in respect of UCIS.  Some will invest in domestic assets, some will be based overseas.  Some will claim that they offer tax breaks on returns, others will make no such claim.  Some will offer a certain rate of return for a certain period of time, e.g. offering a guaranteed 8% return for 2 years, whereas others will offer no guarantee.  Some UCIS’ will “lock in” your investment for a certain period of time, whereas other may allow you to withdraw and reinvest funds at whim.

It cannot be stressed enough that a UCIS can involve an investment in practically anything and is a catch all term which applies to any investment which falls outside of the FCA regulation.  With proper advice and pro-active monitoring from a suitably qualified independent financial advisor (IFA) then a UCIS can offer better returns than more traditional investment vehicle.  They can therefore form an important and lucrative part of a suitably diverse portfolio.

Unfortunately, in recent times there have been a raft of UCIS’s which are incredibly risky, yet have been marketed to individuals on the basis that they are a sound investment particularly when traditional investments are offering a very low rate of return.  Such UCIS’ are obtaining a large amount of negative publicity.

Some of the UCIS’ which have received negative publicity in recent times include:-

  • Energy related schemes such as carbon credit trading
  • Diamond investments
  • Unregulated investments in Gold and/or other precious metals
  • Investment in the building and operation of hotels and other similar accommodation both offshore and internal.
  • Storage pod investments
  • Airport car parking investments
  • Investment in wineries
  • Investment in expensive bottled of wine and/or spirits such as whisky
  • Bamboo plantations
  • Emu Farming
  • Movie production schemes
  • Funding for the provision of professional services such as legal services

The above list is not comprehensive and will be updated from time to time.

Also it is important to note that just because a scheme has garnered negative publicity and/or appears on the above list, it does not necessarily mean that it is automatically a mis-sold investment.

How can an Unregulated Collective Investment Scheme be mis-sold?

A very important fact is that since 2013 the FCA has banned the promotion of UCIS’ to the general public.  UCIS’s should now only be marketed to sophisticated investors and also to high net worth individuals.

However whilst the marketing of UCIS’ to the general public is banned, there is nothing to prevent an unsophisticated investor from investing in a UCIS on their own volition.  In addition the rules concerning who a UCIS can be marketed to has “grey areas” which can lead to them being promoted to unsuitable investors.

A common example of a mis-sale is the “predatory” approach.  A UCIS can be highly lucrative for high pressure salesmen who will often make commission based on sales.  Such salesmen can contact the investor via a cold approach such as a call or home visit.  Alternatively, the salesmen can react to an approach from the investor for more information, e.g. the investor may have clicked on an advert on a website.

Once contact is made, the salesman will seek to convince the investor to invest as soon as possible and will advise them to invest all of their money into the investment, including, if relevant, their Self Invested Personal Pension (SIPP).  They will advise the investor that traditional investments will simply not offer the same rate of return as the one which the salesman believes will make everyone rich, and coincidentally, is the one being offered by the salesman.  You will note from the list of commonly known UCIS’, the asset that is being sold will often be one which can offer comfort to the investor due to common beliefs around that asset e.g. everyone believes that gold will always increase in value and many people have advised them that Emu farming is lucrative.  This assists the salesman in making a sale.

If a sale is made then the investor will be provided with various contracts concerning their investment and will usually receive statements and/or other updates.  Unfortunately the investor will be unaware of whether the investment is suitable for their needs until it is too late.

Another example of a mis-sale may be the “accidental” sale.  In this case the Investor is actively looking to make investments but may purchase a UCIS by mistake.  Such Investors may have their own IFA or have recently appointed an IFA due to a windfall.

In an “accidental” sale the IFA may advise the investor to invest in a UCIS as a result of misinterpreting their appetite for risk and/or been careless with their assessment.  Occasionally the IFA may have wrongly believed that the investor was a sophisticated investor or a high net worth individual or even mistakenly believed that the UCIS was not a UCIS.  In all of these cases then the facts must be reviewed to establish whether there is a mis-sale.

What does this mean for me?

It is a myth to believe that all aspects of a UCIS are unregulated, whilst the underlying investment will be unregulated the advice that led to the investment being entered into will be regulated.

If you believe that you have been mis-sold a UCIS then it is important to get clarity on facts as soon as possible.  Your options concerning how to seek redress will depend entirely upon who had provided you with the advice and the nature in which the advice was given.  Dependent on who your advisor was, then your options may be time sensitive, particularly if you have been unfortunate enough to have received advice from an advisor who themselves was not regulated.

How can we help?

Here at Cooper Stern we are experts at advising individuals and businesses on potentially mis-sold complex financial products.

We offer a no-obligation initial review of a potential UCIS claim, and advise on the strengths and weaknesses of making a claim. Following this, we work on a no-win no-fee basis meaning we will only take forward claims we believe have a strong chance of succeeding.

If you feel you have been mis-sold a UCIS and want us to look into the matter for you please get in touch. You can fill in our simple online enquiry form and one of our expert advisors will call you back to discuss your mis-sold financial product in more detail. Alternatively, you can call us on 01204 328 287 and we will be more than happy to discuss your queries.

how can we help you?

Have any questions? Get in touch with the Cooper Stern team today by submitting an inquiry online.

There are no substantial up-front costs, and our clients like that. The claims we have settled so far have been on a full redress basis. The banks are misbehaving by making offers to businesses, partially repaying what they have paid, and saying they do not need legal advice and making very low offers. I would urge businesses who are affected to get in touch with us before it is too late.

Dan Fallows
Director, Cooper Stern