I was prompted to pose this question this week with the first six firms being declared in default in 2019 by the Financial Services Compensation Scheme, the body that picks up the pieces.
One firm was particularly interesting for all the wrong reasons. It was called HBFS Financial Services and it offered wealth management and ‘financial planning’ services from offices in Borehamwood. It targeted the well-heeled and particularly focused on affluent members of the Jewish community. The story has been big news in the Jewish Chronicle and Jewish media.
The firm was run by fraudster Freddy David who merrily cheated 55 victims out of £14.5m, spending the money to feed his gambling habit and on exotic holidays abroad and on private school fees for his kids.
Nothing too out of the ordinary there. Just another crook who mistakenly thought his clients’ money was his own to play with.
HBFS Financial Services was one of six new firms ruled to be unable to pay claims against it and the former financial adviser is currently in jail serving a six-year sentence for his Ponzi scheme.
A the time of sentencing, Anton Allera, of the Crown Prosecution Service, said: “Freddy David was trusted by his victims who invested their life savings with him. They trusted him as their financial adviser but many also considered him a friend or acquaintance through the Jewish community.
“The impact on some victims has been devastating, leaving them in long term financial distress.”
Of course Financial Planners are now left to pick up the bill for Mr David’s greed as they will have to help fund the compensation bill.
The point here is that the story of Mr David does untold damage to the Financial Planning profession, one which I consider to be both decent on the whole and well regulated. In my experience, the vast majority of planners are authentic, hard working people who put clients first.
But how did Mr David, and all the other crooked advisers, get through some of the toughest financial regulations in the world and a strict company reporting regime, of the type we have in the UK? Others can answer that question but it is clear that whatever rules applied he swerved them.
There were many similar cases last year and probably there will be more this year. Each one knocks a hole in the reputation of decent Financial Planners and yet little is being done to rebuild this reputational damage.
A number of wise people are beginning to grasp the lack of trust in financial services and if there is any hope it is that people are beginning to understand that it’s not just enough offering professional Financial Planning services, the whole sector must be trusted to deliver decent, fair and honest advice.
The professional bodies and regulator have more to do here but a campaign to promote the fact that most advisers can be trusted with your life savings would not go amiss whatever damage the bad apples do. Helping people understand their money is protected in any regulated transaction would also be sensible too.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with over 30 years of experience. He previously worked for the Financial Times Group and in daily and weekly newspapers.