Clitheroekid wrote:It baffles me why the government banned commission on products sold by at least semi-respectable companies like Standard Life and RSA, but apparently saw no reason to place any restrictions at all on `alternative' (aka fraudulent) investments, which even now are being sold quite legally by fraudsters. Utterly bonkers.
With big respect, CK, there's a whole chain of misunderstandings in what you're saying there.
First off, the term "alternative investments" includes a whole range of perfectly straight and legal investments, including Enterprise Investment Schemes and Venture Capital Trusts and Start-UP EIS and crowdfunding and god knows what.
What they all have in common is that they're all focused on small companies, so by definition they're all high risk. The government allows tax breaks for investors who back these risky companies, and has done so since the 1980s. It's one of the reasons why small UK companies are so dynamic by European standards.
It is, however, a rule that these high-risk investments are not to be sold to unsophisticated investors
, or to people who couldn't stand the losses if they ever went belly-up. An adviser would be for the high jump if he ever tried to recommend such things to unsuitable purchasers.Unlike
conventional funds and shares, which are deemed to be suitable for all and sundry, and whose sale and promotion is much more tightly controlled. (The ban on commissions, to which you refer.)
So nobody is ever supposed to be in "alternative investments" unless they understand the risks, which are considerable.
That's your dividing line, then, and it's the primary answer to your question.
It's quite wrong to suggest that all alternative investment promoters are frauds - most are perfectly legit, and don't deserve to be tarred with that brush. But there will always be con men and boiler room operators out there who aren't legit. The authorities try their best to lock them all up, but ultimately it's up to the individual to spot them. Not that difficult, because they operate with mobile phones and "irresistible" email offerings.
No reputable adviser would recommend a boiler room fraud operation, although admittedly a few dodgy cases have slipped through the net in the past. (Big costs and public disgrace to the advisers concerned.) Those few exceptions apart, you can't ever protect against greed and stupidity. But heck, we knew that already.