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Capita's ignorance of Arch Cru assets is unacceptable

by Daniel Grote on Feb 10, 2010 at 14:36

Capita's ignorance of Arch Cru assets is unacceptable

Capita has exposed its shortcomings as administrator for the disastrous Arch Cru funds in a statement to BBC Radio 4’s Moneybox programme.

Capita’s statement paints a picture of a company that simply didn’t know enough about the funds it was being paid to administer as authorised corporate director. It is now reacting with misplaced outrage when confronted with some of the astonishing investment decisions that were made.

So it highlights what we revealed was a £92 million investment Arch made into a fleet of seven ships through the Guernsey cell companies in which the Arch Cru funds invested. Only now is it looking for answers:

‘CFM [Capita Financial Managers] is concerned about the information that has only recently emerged regarding the shipping assets of the cells, which have declined significantly in value, and is pursuing this urgently with Arch and the board of the cells,’ it states.

Recently emerged? As Citywire made clear when we revealed the investment last month, Arch first started putting money into the fleet back in 2007. But Capita told Citywire it only became aware of the assets when it commissioned a review of the assets of the Arch cru funds following their suspension.

How could Capita have remained ignorant about an investment that accounted for a quarter of the funds that they were administering for so long?

But as the statement to the BBC makes clear, Capita amazingly didn’t see it as their role to know what the Guernsey cells were invested in.

‘It is simply not the case that the FSA, Ernst and Young (the auditor to the UK funds) and CFM were “the only people who knew or had access to…knowledge” regarding the assets of the cells,’ it states.

‘CFM was not responsible for the investment decisions taken by Arch as investment adviser to the cells,’ it says, adding that it was responsible only for the management of the UK Oeic funds.

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14 comments so far. Why not have your say?

Gillian Cardy

Feb 10, 2010 at 15:42

I used to think (and I'm not alone) that a regulated firm with assets administered by another regulated firm trading in a regulated market in a regulate country was probably OK ...

Sadly, I learned my first lesson with Morgan Grenfell's European fund ... and because I'm a bit dim I needed to be reminded of that lesson by the episode of the split cap / zero funds.

We may all wish it was different, especially given all the fees that go round in circles to all the various bodies / organisations / lawyers / regulators that are all ultimately paid for by advisers and clients.

However, the sooner we recognise that no-one anywhere else is paying attention, taking resposibility, or even caring, then the sooner we advisers recognise that we may just have to change how we view investments and who provides them ... it may just be that it's the advisers who have to sit in front of real clients day after day accounting for their actions who are the only ones who really care.

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Harry Katz

Feb 10, 2010 at 16:12

Well I have to confess that I’m not surprised in the slightest. Having had to deal with Capita in the past in their capacity of custodians for investment trusts I can vouchsafe that they really are a complete Wunch of Bankers.

I wouldn’t trust them to have custody of my lunchtime sandwiches, let alone anything of value.

I do hope that in the light of this nonsense such worthies (as for example) Caledonia review their decision to use these clowns in future.

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Anon666

Feb 10, 2010 at 16:13

Unfortunately the IFA is the easy target. With all these large financial institutions creating these smoke & mirrors investment vehicles under the ever watchful eyes of the super-efficient regulator it can only have been the adviser who is at fault.

If the regulations were in plain English and easy to follow and the regulator was helpful instead of constantly referring callers to the FSA handbook life would be much simpler.

If every IFA had an unlimited budget we could all deliver 5 star service to every client lareg, small and miniscule.

Unfortunately this is not the case and there appears to be several layers of so called professionals all wanting their piece of the action by charging high fees and then criticising all & sundry at every opportunity to justify their fees.

A bit like some of the crazy ideas that come of of Canary Wharf every few months. lets change this, that and the next damn thing just for the hell of it because it makes us look busy.

Talk about caring about outcomes. Ig they really cared abouyt outcomes they would take a serious look at the amount of consumer money they have wasted over the last 20 years from the days of Fimbra onwards.

I agree there have been many much needed improvements during this time but by no stretch of the imagination has the FSA been value for money in my humble opinion.

Too many actions taken after the event which has had a catastrophic impact on everyone. How Hector and chums can come out with all their positive spin is insulting to all of us who ultimately pay for their abismal performance.

It's not about which fund charges more than aonther or which pension plan is cheaper as these issues, whilst relevant, pale into insignificance when we see clients investments & pensions half in value because an incompetent regulator failed to deal with the serious issues.

How does incompetence by the regulator fit in with TCF and ensuring better consumer outcomes?

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David Mannion

Feb 10, 2010 at 16:23

If we all follow the adage "if it looks to good to be true then it probably is". We would avoid this and the magic circle split caps etc.

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Stuart Rathbone

Feb 10, 2010 at 16:26

It may turn out somewhere along the line someone allegedly may have done something they should not have (hopefully I have included enough caveats not to liable anyone or get sued).

But for the life of me I cannot believe that anyone is stupid enough to expect consistent long term returns from any investment way out of kilter with its point on the risk/reward spectrum.

From all the unsolicited literature I received my instincts told me this was true for these funds. I could have been wrong but it transpires that I was not. Furthermore the greater the opacity of a fund the less inclined I am to consider it. This is not schadenfroid rather just a matter of fact.

As it is the greedy and foolish, wanting returns greater than the commensurate risk involved would indicate is historically achievable, keep getting sucked in.

It’s our role (and I accept it is a difficult) one guide and educate our clients about risk & reward and more importantly to walk away from anything that we are not combatable with. After all they have engaged us as their ADVISERS and if they are not willing take our advice we should not get involved any further.

Remember then old adage: If something looks to good to be true it usually is.

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William Ward

Feb 10, 2010 at 16:26

Why are the FSA so stoney silent on this. Is a cover up or dereliction of duty unfolding. As an adviser community some us need some direction in a clear and understandable manner addressing aspects of responsibility and accountability, right through the food chain.

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Jonathan Price

Feb 10, 2010 at 16:52

Any chance of a US style class action suit? I'd be happy to join one, but not big enough to start one.

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Sorry Daniel, but I can see Capitas point.

Feb 10, 2010 at 16:56

In simple terms:

The ARCH CRU OEIC's purchased shares of (cell) companies listed on a recognised stock exchange.

Neil Woodford's Invesco Perpetual High income fund also buys shares of companies from a recognised stock exchange.

If Woodford purchased shares of RBS what your saying is that the ACD should have full knowledge of the investment decisions and assets of RBS (which probably include ships and private equity etc). Surely its Woodfords responsibility as the fund manager to sit down with the Directors of RBS and do the appropriate due diligence not the ACD's.

If your argument is that the ACD is responsible, then every ACD who looked after a fund which held Bank shares had better be prepared to pay compensation for not spotting the c**p they were investing in.

If IFA's had done their due diligence and had looked at the top 10 holdings and could then get no further information on these holdings- then I'm sorry they shouldn't have invested!

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Jon Collins

Feb 10, 2010 at 17:02

Let's be positive. Go and see the FSA next time they have an open forum near you. Ask them how this and the likes of Keydata happen and what they do with our regulatory fees and observe that compensation levies, paid for by our clients are rising to cover these shortcomings. Rightly the FSA might accept there are issues and in some areas they are challenged by their own remit. Hopefully they will admit they are addressing this and if enough IFAs make the point may be they will.

Then come away from your discussion and remember that you are the gatekeeper and if you can not get the underlying stocklist on the fund in a transparent way that you fully understand you should ignore the offering. That is what our clients pay us for and that, in part is what professionalism is about.

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Neil Liversidge

Feb 10, 2010 at 17:15

Who guards the guards, who watches the watchmen? Not the FSA, obviously! This whole affair epitomises what is wrong with regulation. On the one hand IFAs are micro-regulated at enormous cost in man-hours and (our own) money - witness the intensive and intrusive TCF programme. On the other hand entities that have the potential to do vast amounts of damage to multitudes of individuals apparently fly beneath the radar. Hopefully the replacement for Hector Sants will be somebody with a sense of proportion. On a different note, Dave Mannion and Stuart Rathbone (above) are dead right about IFAs suckered by the promise of unrealistic returns. Sadly this scenario will be repeated in future and a mini-Madoff is probably in the making right now. Only today I had an IFA who should know better trying to involve me in a scheme promising a 320% return in 3 months at nil risk, minimum investment £1m! But does the FSA listen when warned? Probably not if my experience is anything to go by, but my file on Madoff Mark 2 will make interesting reading if/when the brown stuff hits the fan. It truly amazes me just how thick some 'experienced' people in this business can be when there's wads of cash on offer. Lesson: If you don't understand it guys, don't do it, not for yourselves and certainly not for your clients. Remember: You can't con an honest man.

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Philip Stevenson

Feb 10, 2010 at 17:20

Why oh Why do advisers think they have the capability/ knowledge/ competence to deal with this sort of stuff?

I well remember the marketing literature coming in and thinking this can't be true, how can they buck the market like that? Well clearly too many advisers didn't even think that.........now that's scary.

But what is even scarier is that the likes of Capita whose job (as in receiving a fee) was to look under the bonnet to ascertain what was going on clearly took the money and ran.

Lots of comment about the regulator but the FSA is not a product regulator and unlikely to become one. And we don't want them becoming product regulators. Which is why we have administrators (Capita) and advisors to steer people away from this toxic rubbish, stuff that was clearly all but a scam.

Capita should be lambasted (fined?) for deriliction of duty/ taking money under false pretences.

Advisers at fault will probably dump their liabilities on the FSCS or PI insurers, paid for by all those who don't believe everything they read.

Clients want to get from A to B. They have a preferred method of transport (propensity to take risk) and they want someone to drive them there (adviser) in a timely manner. How many advisers are qualified enough to fly a supersonic jet or a Space Shuttle? They are both means of transport but I would argue not what most clients are looking to travel in for a 10, 15 , 20 or 30 year journey. KISS principle

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Anon666

Feb 10, 2010 at 17:24

Don't hold your breath if you're waiting on guidance from the FSA.

As others have said, if it looks too good to be true it usually as and since we're the cat that gets a kicking at every opportunity we need to walk carefully through this minefield.

I believe we're best sticking to the tried & tested (boring as they might be) collective investments where we have easy access to the fund factsheets ......... but remember to read the things and ensure you have a good idea of what is going on within the fund. If in doubt, write to the company and don't recommend until you're satisfied.

It's not a perfect or the only solution but it is a good starting point.

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Robbo

Feb 10, 2010 at 19:08

My name is Robbo and I am a failed ,unworthy IFA.

There,

I feel better now,cleansed and hopefully my admission will satisfy the batallions of smart arse know it -alls who tell us on a daily basis how smart they (now ) were not to touch cru with a barge pole.

35 successful years in our profession but I have another admission. I commited the cardinal sin of believing what I saw,read and questioned.But actually I compounded this, not only by advising (A) client to invest in cru but actually backed that by investing my own money.

What a greedy b......tard I was and thank you for trying to put me on the right road for the future by telling me so.

I tnink those advisors unfortunate enough to be caught up in this sad state of affairs have heard quite enough from those who have no interest at all.

We applaud your forsight but would respectfully request you to withdraw from the debate as your self praise is quite sickening.

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Andrew

Feb 11, 2010 at 09:17

I think this article demonstrates that a financial journalist has a better understanding of the role and function of an ACD than Capita and many of the investment professionals commenting on the situation.

Please do your homework (due dilligence) before making a comment.

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