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FSCS opens door to claims against Cru IFAs

by Jun Merrett on Feb 28, 2012 at 14:14

FSCS opens door to claims against Cru IFAs

The Financial Services Compensation Scheme (FSCS) has said it believes eligible claims exist against some IFA firms which advised on Arch Cru.

The FSCS said it had found some failed IFAs may be liable for losses suffered by consumers where mis-selling can be shown to have occured.

It said it would update investors in late March with more information on the application process for claims and how it will quantify them.

The Financial Services Authority last June announced a £54 million redress scheme for Arch Cru investors, paid for by Arch Cru authorised corporate director Capita and depositories BNY mellon and HSBC. It estimated the scheme could provide investors with around 70% of their money back, but those who take up the offer are still free to pursue their IFA for the remainder of their investment. 

In October 2011, financial secretary to the Treasury Mark Hoban said the FSA payout was fair and that investors should look to their IFAs to seek the rest of their lost investment.

Margaret Cole, interim manager director of the FSA has also hit out against IFAs who advised on Arch Cru, arguing they needed to accept their share of responsibility.

36 comments so far. Why not have your say?

SIMON WELCH

Feb 28, 2012 at 14:50

Well of course it is the IFAs to blame!!

We naturally know the make up, and precise content,of every fund out there (only a few thousand funds to study).

Surely insurance companies who included these funds in their limited fund range did the necessary due diligence first, before classing the fund as cautious/low risk?

Shouldn't they accept responsibility as well for the fund classifcation?

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Joe Egerton

Feb 28, 2012 at 14:52

It has always been the case that if a firm cannot pay compensation and that there is an investor to whom compensation is due, then the FSCS may step in. But we aare still no wiser over the criteria that the FSS will use

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DP's IFA

Feb 28, 2012 at 14:52

Dear Margaret, Please can you advise as to when the FSA are going to accept their share of responsibility?

So who will be responsible for those clients who had some exposure to funds in overall portfolio & the advice was suitable?

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Barman

Feb 28, 2012 at 14:56

Simon, It only says some IFAs will be held liable. I presume in cases where the advice was really poor.

Also, I would recommend never assuming someone else has done the due dilligence on your behalf. Business is business and not everyone cares about the end customer as much as they should.

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Terence O'Halloran

Feb 28, 2012 at 15:05

Perhaps Margaret Cole should practice what she preaches and accept that the responsibility for Arch Cru rests entirely on her own shoulders s the manager responsible and her employers shoulders as the regulator that failed in its fiduciary duty to the public and IFAs.

Jacks of all trades and masters of none are hardly in a position to cast aspersions on those who rely on their (the FSA’s) judgement to conduct themselves.

The FSCS knows that they can demand money - with menaces (you will have your authorisation withdrawn if you do not pay).

My firm was not involved with Arch Cru, however I saw the presentations and I know that Capita had responsibilities. FSCS is merely going where the money is. Well FSCS, TRY PUTTING YOUR HAND IN Ms COLE'S pocket and see how far you get.

She and her team are responsible; let them pay; not me and not my clients.

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Compliance Officer

Feb 28, 2012 at 15:50

RBS famously relied on Barclays not having turned up any nasties during their due diligence on ABN AMRO...

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Phil Wort

Feb 28, 2012 at 16:22

Which provider do you refer to Hugh?

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Hugh Brown

Feb 28, 2012 at 16:35

Alico, formerly known as AIG

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Tellmethetruth!

Feb 28, 2012 at 17:25

What has it to do with insurance companies? You don't buy a car without making an assessment of it.....why recommend a fund you know nothing about...or don't understand! These plans are complex very in transparent and should never been sold to "all and sundry" an "easy buck" comes with liability....home to roost in my opinion!

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DG

Feb 28, 2012 at 17:34

@ Tellmethetruth!

Your name could also be applied to the FSA's complete lack of transparency when it comes to investigating the Arch Cru affair. Why have they not "told the truth" in terms of hopeless regulatory failures on the part of the ACD and the other parties to the Payment Offer clients are supposed to regard as "fair and reasonable".

The fact is, there's very little truth kicking around regarding this affair.

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Barman

Feb 28, 2012 at 17:47

I agree, its clearly everyone elses fault for having the audacity to let this fund exisit and has nothing to do with any advisor that personally recommended that thier clients invested their pensions and/or savings into these funds.

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richard john brydon

Feb 28, 2012 at 17:56

As an IFA I attended a slick Arch Cru presentation and, quite honestly, I didn't understand most of it. I met their rep on two further occasions and I still didn't understand such a complex animal and didn't ever recommend the fund. I later attended a Citywire roadshow and the guy sitting next to me said how much he'd recommended Arch Cru to his clients. He later added: "They pay 1% trail."

Enough said for me.

I was caught out by Keydata to some extent. But then again, how can I be held responsible for the ruinous tactics of the FSA and for someone running off with over £100,000,000?

Two very different cases and certainly no extra financial incentive with Keydata.

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richard john brydon

Feb 28, 2012 at 19:50

@DG

An excellent response to my comments. Any further comment from me would be knit picking.

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Glen McKeown

Feb 28, 2012 at 21:24

@DG Excellent comment. I too went to the Cru presentations, understood them, and was reasonably impressed. In a world mainly providing stooge, it was interesting to hear of something that appeared to have a little cream on it. I did rate them as higher risk. Fortunately I was slow in making any recommendations, so escaped retribution.

The proposition that Cru presented was perfectly realistic at that time. Subsequent actions by personnel at Cru could not have been factored into the equation, so I suspect that a large part of the 'misselling' allegations are a device to deflect attention from the FSA's part in the scandal. But if this is the standard of integrity that one comes to expect from the Regulator does it not raise the question of whether the risk of advising is not greater than the potential reward. Retribution is not related to your own competence and integrity. And the consequences follow you to the grave and beyond. Perhaps advisors should start to consider whether it is fair on spouses to be married them. And when conjectures reach that level, perhaps it is time for Parliament to stop playing at being a sovereign ruler and act.

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Tellmethetruth!

Feb 28, 2012 at 22:53

all very viable arguments and explanations.... But does it not come down to the fact that where firms/providers need counter parties for products and investment opportunities that they themselves do not have the financial strength to back up, then the IFA community should be avoiding selling these wares for tin pot outfits ? Or am I missing something?

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Terence O'Halloran

Feb 29, 2012 at 09:36

'@tellmethetruth - your probably missing most of it , but, that is no more nor less than the FSA and Capita and others appear to have done.

Justifying the unjustifiable is becoming a national pastime.

If you are a financial planner I find your approach naive in the extreme. Lawyer maybe?

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Terence O'Halloran

Feb 29, 2012 at 09:44

@DG AN EXCELLENT INFORMED RESPONSE, THANK YOU.

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Joe Egerton

Feb 29, 2012 at 10:53

Advisers should now consider the financial strength of Fund Managers from the perspective of the client/investor/consumer interest, not their own.

It is now clear that no adviser and no investor can rely on the parent company of an ACD/AFM to make good losses caused by errors or worse by the fund manager. unlike IMRO, the FSA is not prepared to make the owner of an ACD/AFM pay up.

So if the AFM/ACD cannot show at least £200M assets (and that is in the AFM/ACD, not any remote parent) the investor is at risk. It would therefore be prudent for every Adviser to suggest to their clients in any fund with a weak AFM/ACD (and CF is of course an example) that they should switch to investments in a fund where the ACD/AFM has substantial resources.

Further any IFA that recommends a fund run by a financially weak ACD/AFM will have difficulty in complying with the FSA's suitability rule, and, unless an explicit warning is given that the ACD/AFM lacks resources to compensate for errors it makes, will also be in breach of requirements to give risk warnings.

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Michael Brown

Feb 29, 2012 at 12:19

@ DG

Thanks for this but it leaves one more issue.

No doubt my FSCS costs will go up again, even though I have not sold oner of these dam plans!

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DG

Feb 29, 2012 at 12:47

@ Michael Brown

1. My FSCS costs will go up too because of this.

2. My FSCS costs will go up because of KeyData - and I never sold one of those "damn plans".

3. However, my company may be hit with a massive compensation order to repay clients if the FSA has its way and in particular the Midlands based ambulance chasing lawyers (a euphemistic title if ever there was one in this context) who are heavily promoting this route.

Yes, it all sucks. But the blame, I hope you can see, lies with the Regulator not those IFAs who sold what should have been an interesting investment opportunity.

Personally, I'd rather be in your shoes than mine with a (relatively) modest FSCS levy on the cards - justified or otherwise. That said, if this debacle is allowed to proceed to the FSA's pre-determined and wholly unreasonable conclusion, whilst we squabble between ourselves, it will only be a matter of time before its time for you too to face some made up accusation of negligence. Just bear in mind Joe Egerton's comments above and consider if that scenario could, even remotely, affect your clients. Its a situation I never thought could apply to me, after several decades in this "profession", and look where I now find myself - hung out to dry by a morally bankrupt regulator who has published not one iota of evidence to support its ongoing stance on this matter.

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Glen McKeown

Feb 29, 2012 at 12:56

I have to say that all this reminds me of an old Tom Lehrer song "Masochism Tango".

Cha, Cha.

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Michael Brown

Feb 29, 2012 at 13:02

DG

I am with you on points one and two as for three not an issue as we did not sell them.

Undoubtedly the regulator is the issue but as we have found out they are untouchable for any complaint but can lay the jam on anybody else.

In this case I do not see an issiue around squabbles between us as like keyData the plan was fine until somebody nicked the money or invested outside the parameters which the FSa picked up and did nothing about as usual.

Only to aware that somebody somewhere with a plan taken out will complain about something they remember 20 odd years ago but cannot remember what they watched on TV last night gets a compensation order against me.

The long stop, which good old Hector does not want, will get me in the end!

I reported one of the companies transferring pensions for the TFC with the HMRC tax issues after the event and guess what no response. They will be long gone the time they get around to the issue and yet more FSCS costs!

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Barman

Feb 29, 2012 at 13:37

AS the FSCS will be going after a 'few failed IFA's' who probably put most of thier clients assets into these funds whcih were not fit for purpose 'Mis-selling' - explain to me why no-one is blaming the greedy, churning advisors that blight our industry?

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Terence O'Halloran

Feb 29, 2012 at 14:26

@barman "explain to me why no-one is blaming the greedy, churning advisors that blight our industry?"

Probably, barman, because there are rather less of these 'churnuing advisers, than you appear to think. I have supported quite a few 'advisers' who have been maligned, and fined, and sadly one or two driven out of business by malice rather than fact AND THE STYLE OF SELF CENTRED BIGOTRY THAT YOU DISPLAY IN YOUR COMMENT.

The FSA failed in its task of protecting the public and the FOS, FSCS seek solace and compensation where it is most easily available, our pockets and the PI insurers.

David Kenmir started the trend with the pension review and it has grown in popularity within the halls of regulation ever since.

In my book that makes the authorities rather more corrupt than those that they accuse. If that helps to tone down your wild assetions and the regulator's misplaced priorities then I will feel I have achieved something positive today.

"Let he who is without sin (or well documented , corroberated evidence), cast the first stone: or keep their wild accusations to themselves" to quote an old saying.

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DG

Feb 29, 2012 at 14:27

@Barman

Agreed that clear cases of mis-selling demand action but consider these scenarios:

A. Adviser puts "too much" (a figure open to interpretation, obviously) into a fund that does well. Unlikely to be a complaint. Although the advice, if based purely upon there being "too much" allocated to one investment, was still open to criticism and, presumably, if the investor felt so inclined could be taken to the powers-that-be as a complaint. Quite what the grounds for compensation would be, in this situation, is difficult to see - perhaps sleepless nights that would have been incurred had they known they had too much allocated to one investment! Let's face it - a good excuse isn't really a pre-requisite these days.

B. Adviser places a sum in an investment that goes belly up. If the "too much" test is failed then probably a complaint would be supportable.

C. Adviser places an "appropriate sum" (again open to interpretation but you get my meaning) and investment goes belly up. It can't fail the too much test quite so easily so the next stage is to see if the investment was suitable to the clients attitude to risk, etc, etc. But how can this test be applied if the fund, as described, was not the fund that was acquired by virtue of a management strategy that was way off remit.

In this scenario - a significant proportion, I'd guess, of Arch Cru cases - the underlying causes of the fund's failure should be properly investigated especially where there are well documented causes for disquiet. However, it is quite plainly wrong to tar ALL advisers with the same brush simply because a few would have failed the "too much" test something, I'm sure, that could be applied to many situations advisers find themselves in - model portfolios, say, where only a handful of funds are used for almost all client circumsatnces?

I'm not calling for blanket absolution in the Arch Cru affair but a simple, fair deal from a Regulator that should be doing its job properly not railroading through a "solution" that treats no-one fairly.

@ Glen

You've lost me re the song reference I'm afraid!

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Michael Brown

Feb 29, 2012 at 14:37

Terence

WhilstIi understand and agree to some of your comments perhaps a bit over the top?

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Terence O'Halloran

Feb 29, 2012 at 15:17

@Michael Brown. When you witness grown men cry because their life's work is stolen, nothing can be over the top.

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Glen McKeown

Feb 29, 2012 at 15:26

Terence, I'm at one with you on this on. When the judgement is factless, vindictive and plain childish, there are ample grounds for ensuring your displeasure is adequately conveyed.

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Barman

Feb 29, 2012 at 15:26

My point being that in cases where a proper factfind was carried out, the risk matched the clients ATR and the concentration was appropriate, then fine, that cannot be classed as mis-selling. However as the above article states, cases of mis-selling will be the ones targeted. I know of IFA's who put all their clients, regardless of ATR into these funds, in some cases up to 80% of thier money. THESE are the instances to which I refer!!

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DG

Feb 29, 2012 at 15:57

@ Barman

Your points are noted.

However, what I think you are unaware of is that a case is currently being made for ALL IFAs who advised their clients, even in accordance with the very reasonable procedures you have outlined above, to be MADE to restore investors to their position before they allocated any capital to Arch Cru. This route is being pursued by "lawyers" in the Midlands who initially puirported to be heloing IFAs caught up in this mess and is supported by the FSA and the Treasury. If you're not directly involved in any cases then this issue has, perhaps, passed you by as it has many other advisers.

In other words, simply by association with these funds you are tainted and possibly targeted for restitution even though, by any standard of common sense, this is grossly unfair. It is for this reason that many other advisers are getting quieted aerated about this subject.

Consider the case of the FSCS's lawyers writing to Keydata IFA's advising them to settle up for a discount, see:

http://citywire.co.uk/new-model-adviser/fscs-offers-to-slash-bill-for-ifas-who-sold-keydata/a566408

Note that these are advisers who merely advised that a Keydata investment was acquired by their clients. No mention of FOS awards or client complaints. All you had to do was sell a KeyData investment and, as a direct consequence of it having gone belly up - for reasons that are, of course, ignored - you're liable. This is the precedent, closely followed by Arch Cru, if the FSA has its way.

Fair and reasonable - ha!

I suggest you also read S Gould's comment at 12.54 on the above page and consider that with reference to by point at 9.45 this morning.

Must do some work!

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Barman

Feb 29, 2012 at 16:05

@DG, I was not aware of this case. I mearly refered to the article above. Your correct that this seems well OTT, I would only have reasonabley thought that cases of actual mis-selling would be targeted.

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DG

Feb 29, 2012 at 16:16

@Barman

It pays to be better informed.

Perhaps you can now appreciate the utter frustration that I and other affected IFAs feel at this gross injustice that has implications for us all - either now or later!!

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Terence O'Halloran

Feb 29, 2012 at 16:53

@barman "I know of IFA's who put all their clients, regardless of ATR into these funds, in some cases up to 80% of thier money. THESE are the instances to which I refer!!"

And if it was the client that promoted that 'recklessness?' Should the client have responsibility for their own actions - do their due dilligence - remove their greed or bias?

Sorry Barman the real world seems to be rather more complex than this simplistic '80% of their money' when they may well have other counterbalences PLUS their own needs or greeds to satisfy. Caveat emptor was, and remains, a primary element of any investment. Unfortunately for many financial advisers it has been sidelined to make way for headlines.

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Ned K

Mar 01, 2012 at 17:35

Citywire should run an article on the reaction of PI insurers to the FSA pogroms against IFA's blamed for the fund managers of CF Arch/Keydata off mandate 'investment strategy' . For those that have tried to renew their PI insurance recently you may be aware that many providers have withdrawn from the market. If the FSA continues with it's action all PI insurers will withdraw from the market because they will not be prepared to accept unlimited liability for fund and regulatory failings. An IFA's PI policy is to provide cover in the event of professional failings of the adviser not the product provider. Whether you like it or not all IFA's are going to feel the fall out from CF Arch and Keydata and the FSCS levy is goign to be the least of your worries try operating without any PI cover.

We no longer have any exposure to any other CF denoted fund!!

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DG

Mar 02, 2012 at 07:31

@ NedK

Well said - that's it in a nutshell.

Unsavoury behaviour by a morally bereft Regulator will prove to be the biggest problem we all face - irrespective of how well we conduct due diligence, etc. From the PI insurers stance, and I've had this directly from my broker, they have no desire to cover a limiltess book. If the FSA think they can use the Lloyds market as their own piggybank to bail out investors who've had short shrift at the hands of dodgy investment companies they have woefully misjudged (surprise, surprise) the reality of the mess they are rapidly creating in the financial services market.

Me too re CF - very long barge poles come to mind but, in the future, that will be one less potential stick to beat me with! Do the same or face the consequences - you can't say you haven't been warned this time!

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DG

Mar 02, 2012 at 11:07

@ Ned

You have such a polite way with words my friend:

Said lawyers advice to some IFAs to "restructure" should simply read "b****r off and leave the rest of the adviser community to pick up the bill". Why......because you can and to hell with the morality.

Furthermore, you can hardly blame them. Why should they behave any more decently than the FSA who clearly have no interest in TCF in practice. This just leaves those businesses like yours, mine and countless others not even directly involved with Arch Cru, that don't have the integrity of pondlife, to soldier on with the sword of Damocles hanging over our heads.

Meanwhile the FSA fiddles while the remaining financial services businesses it's supposed to oversee burn. Unless they have deep(er) pockets and powerful lobbyists like CF, of course.

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