The retrospective creation of signatures on 'sophisticated investor' certificates features highly in this former advisor's list of misdeeds, as do frequent misrepresentations of people's attitudes to risk.

In December 2013 the UK's Financial Conduct Authority decided to fine Paul Reynolds, a financial adviser who recommended unsuitable products, and ban him from finance. After a failed appeal to the Upper Tribunal, he will now have to pay £290,344. Reynolds referred the matter to the Upper Tribunal (Tax and Chancery Chamber) on 13 January 2014 and the case wound on until he withdrew on 30 April 2015.

Reynolds was an 'approved person' at Aspire, a firm previously known as Positive Financial Strategies Ltd that re-named itself as Aspire Personal Finance Limited in 2008 and was later dissolved. The FCA says that he  breached APER (Approved Persons Regime) Statement of Principle 1 (which says that an approved person must act with integrity in carrying out his controlled function) because he:

• recklessly recommended high risk UCIS and GTEPs to eight retail clients, who subsequently invested in the products, when he was aware that he could not justify their suitability;
• was involved in retrospectively creating various documents, including fact finds and suitability reports, and represented that they were contemporaneous documents/client records;
• made inaccurate and misleading statements to the Authority, including during a compelled interview;  
• made investments on behalf of two clients without their knowledge or authorisation;  
• was involved in retrospectively creating signatures purporting to be the signatures of two clients on sophisticated investor certificates to suggest that UCIS products could legitimately be promoted to them;
• was involved in the production of inflated valuations of clients’ investments in an attempt to mislead them and conceal the poor performance of the investments he had recommended; and
• was involved in submitting loan facility and investment applications, on behalf of a number of his clients, which contained inflated incomes and other false and misleading information.

Some reckless recommendations of UCIS and GTEPs Reynolds could not justify the suitability of his recommendations of UCIS (unregulated collective investment schemes) and GTEPs (geared traded endowment policies) to 8 of his clients. In every case, the risk of the product did not match the clients’ attitudes to risk, but he made the recommendations regardless.
 
Between August 2006 and February 2008, Reynolds recommended to Client A, who had been diagnosed with prostate cancer, that he should invest £365,000 in GTEPs, arranging an interest-only mortgage against his home to raise these funds. In December 2007 he recommended that Client A should invest pension funds in a UCIS investment. Client A asserts that he told Reynolds that he was not willing to take risks, but Reynolds characterised him as a sophisticated investor and recommended GTEPs and UCIS to him.
 
In 2005, Reynolds recommended to Client B, who was close to retirement and soon to have no income other than her state pension, that she should re-mortgage her house on an interest-only basis in order to invest in TEPs, as well as taking out a life insurance policy.  She asserts that the risks of GTEPs were not explained to her and that she was not told that she was taking out an additional building society loan. In 2007 Reynolds also advised Client B to transfer her pension funds into a UCIS.
 
In 2008, Reynolds recommended to Client C, a hairdresser earning approximately £10,000 per year, that she should re-mortgage her home on an interest-only basis for £130,000 and invest the proceeds in FOREX and TEPs. He also recommended that she should invest £20,000 in UCIS. At the time of the recommendations, Client C asserts that Reynolds was aware of her financial situation and that she was not willing to take any risk. Reynolds was also involved in the retrospective creation of a signature purporting to belong to Client C on a 'sophisticated investor' certificate, apparently after he had recommended UCIS to her.

In 2008 Reynolds recommended to Client D, a part-time accounts assistant earning approximately £3,000 per annum and her husband, a chef, that she should take out an interest only mortgage on her home for £507,000 and invest £500,000 of the proceeds in FOREX and TEPs. Mr Reynolds also advised her to take out a loan facility for approximately £15,000. He did not undertake a risk assessment and Client D asserts that he recommended GTEPs without explaining the effects of gearing to her.

In or about December 2005, Mr Reynolds recommended that Client E should remortgage his house on an interest-only basis and invest £200,000 in GTEPs. In 2007-8, he recommended that Client E should invest about £176,500 from his pension fund in UCIS. Client E asserts that Mr Reynolds asked him about the level of risk he was willing to take and was told that Client E was not willing to take risks. In Reynolds’ fact-find documents (not completed in Client E’s presence) Client E’s attitude to risk is recorded as 'medium to high.' Mr Reynolds was also involved in the retrospective creation of a signature purporting to be Client E’s signature on a 'sophisticated investor' certificate.
 
In about January 2008, Mr Reynolds recommended that Client F should re-mortgage his house and invest £150,000 in FOREX and TEPs. He also advised Client F to take out a gearing loan in order to repay the mortgage and the premiums due on the TEPs. In addition, Mr Reynolds advised Client F to transfer his pension funds worth approximately £57,000 into a UCIS. Client F asserts that Mr Reynolds never assessed his attitude to risk and did not explain the risks of the GTEP loan facility. He further did not explain to Client F that the UCIS investment was unregulated and gave Client F insufficient time to understand the nature of the investment. Mr Reynolds asked Client F to sign a 'sophisticated investor' certificate even though he did not in fact meet the relevant criteria, so that Mr Reynolds could recommend UCIS to him. When Client F enquired about the reasons why he was being asked to sign the certificate, he was told “not to worry about it”.

In or about March 2007, Mr Reynolds recommended that Client G should re-mortgage on an interest-only basis to invest approximately £100,000 in a UCIS. He further recommended that this investment should be partly encashed and re-invested in two other UCIS funds a year later. Client G made it clear to Mr Reynolds that she was not generally willing to take risks, although she and her husband were prepared to take some risk with the £300 a month they invested in a savings plan, but Mr Reynolds recorded a 'medium to high' attitude to risk.  The fact finds in respect of these recommendations recorded income, expenditure, assets and liabilities as not disclosed.

Between 2006 and 2008, Mr Reynolds recommended that Client H should invest in several UCIS funds. Client H asserts that he did not discuss either Client H or his wife’s attitude to risk with them and did not discuss the fact that UCIS are highly risky investments. Instead, Client H asserts that Reynolds told him that there was no risk to capital and that there was a guaranteed 15% return. Mr Reynolds’ records wrongly described Client H as a sophisticated investor. In fact, he lacked the credentials for that classification.

The fining process

As readers might have observed, these events took place before the year of 2010 in which the old Financial Services Authority's fining regime changed to the one that the current FCA recognises and uses. This is irrelevant to the 'disgorgement' figure, however, where the FCA notes that "It is not possible to quantify any specific sum of financial benefit that Mr Reynolds derived directly from the breach during this period." This is very good news for Reynolds, who would otherwise have had to compensate his alleged victims according to a sliding scale.