To better understand the level of risk, it helps to know how the investment industry works.
Our role is as financial intermediaries and all investments are made directly with product providers. In the case of mainstream investments such as ISAs, pensions, shares, unit trust, bonds, and cash this will be with a platform. We use Transact who are one of the largest platforms and have the capacity to host our investment methodology.
In some cases, such as with Venture Capital Trusts (VCTs), Enterprise Initiative Schemes (EIS) and Life assurance, investments and premiums will be paid directly to third party providers.
In fact, the only real consequence of Path going bust would be that you would be left with no financial adviser and no over-arching supervision of the investment strategy. You would thus be left with your third-party product or platform provider intact and your relationship with them would remain exactly unchanged. All the funds in your portfolio would similarly be unaffected. All you would need to do in this instance would be to decide whether you wanted to appoint a new financial adviser at that point to pick up where we left off (albeit no doubt with a different investment methodology). The fee payable to Path would then be directed to your new adviser.
We take the risk of fraud and mismanagement very seriously. We only use funds that have high liquidity, that have passed the due diligence of the platform that they sit on and that Path or its employees have no financial interest in. At no time will we ever, under any circumstances physically handle your money.
To further safeguard against fraud and mismanagement Path has the following governance processes in place:
- Employees are signed up to the FCA Code of Conduct, along with similar schemes operated by the Personal Finance Society and the Chartered Institute for Securities and Investment;
- All new advisers have been subject to a criminal records check (now called a DBS – disclosure and barring service);
- Each year, advisers and those with key control functions are subject to a credit check to ensure that they are not under financial duress;
- We proactively monitor client work and take all complaints seriously;
- In the event of negligence leading to financial losses for clients, we are covered by Professional Indemnity Insurance and a copy of the current policy schedule is available on request;
- We are on the Financial Services Register on which you can view the status of our firm and the regulated individuals.
In the UK, all operators in the sector should be governed by the rules set out and monitored by the Financial Conduct Authority (FCA). They are subject to the authority of the Financial Ombudsman Service (FOS) which investigates complaints. And they should be members of the Financial Services Compensation Scheme (FSCS), which protects an investor’s money up to guaranteed limits.
Every touchpoint in the process – the financial planner, investment host, fund manager, registrar for investment products – is regulated by the same rules of conduct policed by the FCA.
This is an important safeguard when businesses hit financial difficulties.
One of the principles of consumer protection in financial services is that the rules and guarantees are broadly the
same for everyone: large institutions and small boutique firms, major investment funds and small private investors.
You may not realise it, but the largest global bank does not provide higher FOS or FSCS levels of protection than your local high-street IFA. In fact, in many instances the products offered by financial advisers have higher degrees of investor protection than banks.