Financial advisers and accountants are facing challenges for compensation after directing clients to risky unregulated collective investment schemes (UCIS).
HM Revenue & Customs and the Financial Services Authority (FSA) are looking at the validity of dozens of schemes that deal with investments like film production, hardwood plantations and overseas property.
The FSA has already issued a warning to investors to stay away from the schemes – while claims management companies go further and accuse some of scamming investors.
One firm leading the charge against advice to put money in to these schemes is Rebus Investment Solutions, based in London.
The firm argues UCIS schemes rarely make money and were set up to provide tax reliefs against other earnings. Many of the investors are highly paid celebrities, musicians and sports stars.
Smoke and mirrors
Many of these schemes have come under the scrutiny of HMRC, with several cases awaiting hearings before tax tribunals.
One case has already cleared the tribunal – film partnership Eclipse 35 was found to break tax rules, resulting in 289 investors facing tax bills for more than £117 million tax avoided by putting money in to the scheme.
“Some investors are dazzled by the film industry,” said Jacky Osman, head of technical services at Rebus.
“It’s estimated that only 5% of films make a profit for investors, and then often marginal ones. Up to 70% of box office returns can go to cinemas and a chunk of what’s left goes to distributors and sales agents.
“The problem is the promotional documentation makes clear what the likely box office takings may be, and what previous box office smashes they have achieved, but it’s a little more smoke and mirrors on the fees side.”
IFAs under investigation
Many film investments are genuine, says Osman, but some are scams.
“One involved a film with a £7 million budget. Only £2 million from the £7 million went in to making the film, which flopped. The remaining £5 million went in ‘fees’ to the company.”
The FSA is taking a serious look at UCIS – with a special team from the FSA’s Enforcement and Financial Crime Division investigating six firms that have recommended the investments to clients.
IFAs are reviewing the advice they have given to clients about UCIS investments, and the FSA is urging them to compensate clients.
Around 100 advisers are facing challenges about the suitability of their recommendations for investors, with many case before the Financial Ombudsman’s Service for an adjudication about the levels of compensation due.