IFA firm with Arch Cru exposure goes into liquidation

That is not exactly correct any successful claims against the company would be paid for by financial advisers that have been prudent in their advice.

Perhaps, if the FSA had insisted on personal guarantees (as often required by our friends in the banking industry) products like Cru and Keydata may not have seen the light of day. Currently I'm assisting a number of clients who will advise to go into this investment.

It really makes my blood boil that directors of companies are allowed to walk away while others in the industry the pieces of the structure and a cause

Is this not 'Phoenxing' ........ again!

Bad advice , walk away, start again!

This illustrates the farce that is the change of control procedures laid out by FSA and why post-RDR, asset deals I hope, will become a thing of the past. Anyone who has attempted to buy the shares of an IFA business i.e. take the thing lock stock will agree it is painful and time-consuming as hoops are jumped through on solvency, operational structure etc. On the other hand, simply buy the assets, wind the shell company up, bugger the poor clients and the FSA do not even need to know anything about it all (except the deauthorisation of the OLDCO).

Extending the change of control scope to include asset deals would solve all this at a swipe.

Another one we'll all have to pay for.

You should be careful in your assessment of other IFAs Mr Clancy. There is already enough people outside of the industry keen to jump on the blame the IFA bandwagon without the addition of someone who should know better.

It seems that whenever anything goes wrong certain IFAs check their new business registers to see if they can be implicated, and when they see that through good fortune (and it is luck in 99.9% of cases) they and their clients are not affected, then they are overcome by a self rightious feeling of smugness and the need to announce to the world that the IFAs caught up in the problem are either incompetent or crooks and that naturally they are not party to the sordid goings on.

It would be great if this industry could loose the overwhelming stench of self-interest and hypocracy.

The FSA sheltered their liabilities for endowment shortfalls caused by LAUTRO insistence on LAUTRO standard charges rather than “own charges”. This is an example of Phoenixing if ever there was one. Your will recall charges quoted under LAUTRO projection rules on endowment policies sold in the late 80s and early 90s were in many cases lower than the charges companies actually imposed and were in part responsible for many of the endowment shortfalls. When Janet Walford OBE raised this issue the FSA merely stated that it was not their problem as it was on the LAUTRO watch! So you see it is not just advisers that Phoenix!

Imagine an engineering company. Several customers/clients. One large customer goes under owing a lot of money, causing the insolvency of the engineering company. How might the other customers be best served in that situation? Having the production facilities, inventory and order book purchased to ensure continuity of supply must surely be the best option. After the liquidation, a similar thing seems to have happened here.

What some of you guys don't like is the idea that we all chip into a pot to compensate the clients of failed IFA firms. That is a different and distinct matter. Why shouldn't we? Who else is going to?

It is only a problem if the IFA sector shrinks until there is only one firm left to carry the can. On the other hand, if the Government and Regulators manage affairs so that we have a growing, thriving and rapidly expanding IFA sector, not only does your problem diminish, but the general public benefits and the savings ratio gets sorted out to boot.

Come on ... be imaginative and address the real problem.

Whilst the whole Keydata/Arch Cru etc affairs may appear to be unfair to those IFAs who advised on them - surely the fact that there is a route through which they can dump their problems with virtual impunity is even more unfair on the rest of us? Why not follow bankruptcy rules and place a restriction on the period on which they can act as a controlling function?

I'm guessing they were paid commission on these investments - what's happened to that? Another reason why the £10k capital adequacy limit should be increased - if you're going to advice in certain areas you need to make adequate risk provisions.

I like what you say Brian Johnson and I think IMO you are right. Luck does play a huge part in this as these companies like Arch Cru and Hartford to name but a few seem very crediable reliable companies.

We cant wait to blame others fro their seemingly lack of competence when we find out that, "phew, thank god I didn't invest in that after all" or "phew, thank god that fund didnt feature in that portfolio".

Not so long ago, the so called investment adviser was all about, WP then distribution and then fantastic lets go all out in property funds.

For me personally, diversification is the key and just hope you chose the funds and managers who deliver what they promise too.

Fingers crossed hey everyone!

Brian Johnson.

Very, very well put.

So refreshing to hear on these pages an indication of professionalism at last. The first rule of any profession is to monitor and police itself. So many on here are keen to bash each other on nil information and skant experience. Maybe we should have a clause about bringing the profession into disrepute. Professionalism isn't just about passing exams and wearing a suit.

Well said, Tony and Brian.

A lot more advisers would have gone into these funds had they been able to get them past their networks and so perhaps these might be those who are now so full of self righteousness. You can always tell on IFA but you cannot tell them much. The roadshows that were delivered could have left one questioning why advisers would not include these funds? Let's see what the outcome is in the end. It's a long way from over yet!

Two pharmaceutical companies –company A missold badly researched pills for years that earned millions of profits in good years, then goes into liquidation. Should company B pay for the carnage left behind if it had nothing to do company A given it earned less profits/ was more diligent all its life? Absolutely not. If company B has nothing to do with company A and company B operates as a ltd company (a private concern in charge of own decisions with no mass association or part of an umbrella parent company) how can company B be tarred with the same brush and pay for the misdemeanors of company A?

The livelihood of good IFA should not be held to ransom by the regulators and other bad IFAs just because of a poorly dreamt up system that doesn’t work. This does not fit in with the thousands of small IFA companies. Just waiting for a future Armageddon day over which IFAs have no influence or control is no way to run a business even although this is convenient for the FSA regulators.

Product regulation (with FSA to police this for a change -now that would be a novelty) coupled with adviser indemnity insurance (A I I ) and the courts to compensate are the only way forward not a one size fits all compensation scheme.

Professional indemnity insurance would then only have to deal with advisers carrying the can for bad advice, not advisers paying for bad product regulation where the FSA currently go missing. So the cost of PII cover would fall as risks could be managed and things for IFAs would not be uncertain as things currently stand which is unacceptable to all.

If Carlsberg or rather the FSA did product regulation would not endowments have been picked up resulting in the regulator paying for the compensation as it was 'guilty as not charged'

Remember, as inferred by Simon Mansell, the real truth, believe it or not is the lack of regulation and govt measures were the reason why endowments went bad. The shape shifting regulators blamed IFAs thus semi killing off the life assurance industry in the process in the blame game. With FSA product regulation, let the FSA put its money where its mouth is, if it truly is interested in correcting regulation and compensation. If the FSA is as perfect at regulation as it wants IFAs to be, there should then be no problem in avoiding problems. As the FSA is created by statute, the tax payer can foot the bill WHEN it gets it wrong (AND IT WILL), not private IFA firms who cannot be responsible for the actions of private LTD comnpanies and all RIs.

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I hope Mr Clancy's advice is better than his syntax.

IFAs promoting Equity IQ would do well to remember Arch Cru.

Martin Beazer demonstrates complete ignorance of the facts if he seeks to compare the Arch Cru debacle with the Hartford's withdrawal from the UK (and Japan).

Although the Hartford withdrew to the States, all contract terms, conditions and guarantees remain in place for IFAs' clients.

Such lack of comprehension is disappointing, and sadly not uncommon.

The reason for The Hartford withdrawing to the USA was the cost of the guarantees it gave.

Interesting too to hear something good about networks (Anonymous 1) where someone seems to have seen beneath the veneer.

The last irony of course is that the IFA went into liquidation after selling too much of what was suposed to be a low risk investment YCMIU.

well done ex-employee, you have just done the whole thing we are talking about here.

I mentioned hartford purely because they over promised, couldn't sustain, withdrew. I love people like you, honestly.

Well said Peter Grant. l smell a rat as well as a Phoenix. This is NOTHING whatsoever to do with The Hartford

"Two pharmaceutical companies –company A missold badly researched pills for years that earned millions of profits in good years, then goes into liquidation....." NOT a good example.

How can the products of a pharmaceutical company be "missold" exactly? They are either sold or they are not sold. They either work well or not so well or not at all. And "bad research"? Where on earth do we start with that concept? This is getting juvenile. It is certainly missing the point by a mile.

Look at it from the point of view of the clients.

Some would have been sold the Arch Cru product, will have complained, and will be entitled to compensation. Issue No 1: what is the best means by which they can be compensated?

The majority of clients will probably not have been sold these products. Issue No 2: how are their best interests and ongoing servicing needs to be best met? I think the liquidator got it right, and did it with admirable expediency. But then the liquidator does not carry the intellectual baggage evident in many of the posts here.

A number of complaints of which one was Arch Cru. Just one. Arch Cru is a red herring I suspect which may lead to some of the misplaced sympathy here.

This is another Phoenix about which the FSA can do nothing – the FSA should insist on external consultants auditing the new business of the new firm which any decent IFA would do in any case.

The liquidator has sold the client bank at a distressed value (thereby reducing the assets available for compensating the complainants). Furthermore, the liquidator will probably do very little since he is unlikely to be paid so just the bare minimum will be done. What he does do will remove any remaining assets.

Cash would have been stripped out of the business long before it folded and I wonder who got that? All that is left on the balance sheet are assets which (upon forced sale) are worth far less that those declared in the accounts and the FSA Returns. And then the whole thing is justified by providing continued employment for administrative staff.

It stinks and the cost of compensation is dumped on other responsible IFAs. The solution (and this will upset many IFAs) is greater capital adequacy with segregated (ring fenced) funds far in excess of the miserable £20,000 currently required, based on regulated turnover.

Re the comments from Sam Caunt.

"The liquidator has sold the client bank at a distressed value " ... an emotive term but what else do you expect in the circumstances? It happens in all types of business, not just financial services.

"And then the whole thing is justified by providing continued employment for administrative staff.". Jolly good too if you happen to be one of the administrative staff or one of the majority of clients to whom no compensation will be due.

"It stinks and the cost of compensation is dumped on other responsible IFAs" ------ That is really the whole point of this rant isn't it?

What do you think the cost will be, in fact? In terms of average turnover per case per client , not much at all, I'd wager.

If the CF Arch funds turn out to be a failing of governance and integrity at provider level (as it may well do) as opposed to issues of suitability then why should IFA's be asked to foot the bill? Those IFA's that bitch and moan about others and all too easily resign themselves to paying for provider failings should show more fortitude and reject something which is unjust. I have no connection with the firm in question but I do sympathise with their plight.

The whole point about this is that this firm and no doubt thousands of others are out there peddling stuff they neither understand nor research properly. They all think they know the 'next big thing', the new 'golden bullet'. Not only that but they start up again when it does go wrong as if nothing has happened.

Well guess what if you stop looking for the next big thing or golden bullet and get down to straightforward honest to goodness financial planning and avoid all this ArchCru, Keydata, structured products nonsense we won't have all this stuff as a problem periodically. Trouble is some IFA's think they are somebody and can buck the trend when all they really are are witchdoctors peddling magic potions. If it works they're like Gods, if it doesn't it aint their fault it 's the products or the product providers

Well said Philip Stevenson. IFAs sit astride high horses made of straw, waiting for the next mis-sale to set the fire. I know, I was one and thank God my exposure to Keydata was limited. I've never had a client complaint in 15 years and that's why I've walked away from the IFA world, I want it to stay that way.

StuartN's comments underline the real problems in this industry, and it is a great pity for his former clients and the industry as a whole that those problems have led him to walk away from the IFA world, despite never having had one complaint in 15 years.

We would do well to reflect not only on the dodgy qualities of some IFA's, whether they remain in the business or have left; but also on the very good qualities of probably a far greater number who have voted with their feet on the absurdities that permeate the industry.

I wish you well, Stuart.

I wonder which firm of lawyers were working on this deal, not sure I need three guesses!