Integrity scandal: advisers could foot £40m FSCS bill

The understanding of my company, FinancialAdviceLiability, which is assisting clients who have invested in Integrity Plans is as follows:

1. FSCS maximum award per individual is £50,000: therefore in the case of a couple who have invested the maximum award would be £100,000.

2. According to FSA Final Notice, Integrity sold 58 GTEPs via its own practice. Therefore based on Gareth's estimate of £100,000 investment per client, it appears that the maximum payout by the FSCS as a result of declaring Integrity in default would be aprrox £6 million.

3. The above awards could be significantly increased because a number of IFAs in liquidation havee clients invested in Integrity Plans as a result of their recommendations(such as Garrison Finance & Langtons). The FSCS is already facing claims from some of these investors.

4. I challenge any IFA to justify why he/she recommended the product to clients. Frankly this is a disgrace to the industry and the profession because I do not believe that any reasonably competent IFA who conducted appropriate and independent due diligence would have recommended this investment as anything other than exteremely high risk. ’

Trouble is Paul, as you say, how could a reasonably competent adviser recommend these products?

Good question.

You then list two firms who did sell them and who were anything but competent, and in one case, not even solvent while they were trading.

However, as we all know, it's the rest of us who are supposed tpo pick up the tab for their incompetence, and perhaps more importantly, the incompetence of the FSA in allowing the product to be sold.

Another set of clients that Mr Fatchett is assisting in delaings with the FSCS. The same firm that promotes a service to help IFA firms avoid liabilities.

Why do we give this guy air time?

The HMRC would have you believe that the FSA is 'an independent non-government body’, given powers solely under FSMA. That the FSA is a company limited by guarantee and financed entirely by the financial services industry.

The FSA under Hector Sants has created a monster which is flawed in both its judgement and its basic intelligence as it is far from independent. This is best shown in the new HMRC draw down significant tax claw back, if you transfer or annuitise before age 55 years.

FSA now suggest anyone who does incur the tax penalty should complaint to the FOS for a sympathetic hearing - yes, blame the IFA as they gave you the bad advice.

It is time to call a halt to this stupidity as this is yet another remedy for IFA business failure, courtesy of HMG.

So the FSA does and has worked for the Government all along without impartiality and with clear mandates to avoid any liability to government even when it is clear that the liability is down to them and not the IFA - trouble is no one will speak out on the IFA community's behalf, the IFA’s are terrified of the wrath or retribution or costs the FSA are empowered to bring down on any one business.

George Orwell has it - as big brother is watching you, and without comeback.

I do hope that the new government does get this sorted, as it makes a mockery of the regular government statements, from the election campaign, of government fully supporting the business community – very misplaced when the government is supportive of the FSA, and the FSA is supportive only for the banks.

It is time for change.............

To Anonymous: HMRC are quite correct in their statement of the legal structure of the FSA. What your rant has to do with the topic it falls under is a bit of a mystery, and the contents are worrying - I do hope you are not an IFA. The age 55 retirement rules have been known about for a number of years, so why the bitch now?.

Instead, if you want to criticise aim at the right targets.

For example, whilst the FSA structure is correctly defined one should question why it is answerable to absolutely no-one. Even parliament, the ultimate authority in this country (just) is answerable to the electorate. The FSA does not have to justify its actions (so long as they are not ultra vires) to anyone.

You may also wish to question why the Liberal Democrats are so anxious to maintain such a non democratic body? The Tories had intended to give a good overhaul.

As you may, or may not, remember from your history lessons the first Liberal philosophers were extremely right wing - perhaps why some of their policy compromises appear to be further to the right than the policies of the party they are now in bed with. And that orientation may explain why they are happy with such repulsive absolutism.

Whilst the FSA in technically independent it does end up being run by Government cronies (they are appointed by the Treasury, just to confirm their independence!) - which is a reason that the Government does not wish to criticise it.

It would also be worth looking at the functions of the non-executive board members. The word eunuch springs to mind.

Which is perhaps why the FSA never appear to pick up toxic investments until too late, and are happy to spread the resultant loss over everyone who is not involved with the investment. This is both retrospective and discretionary law, either of which would, in the past, have been considered to be contrary to the customs of the UK.

Now everyone is happy to keep quiet, especially if they receive part of the compensation. Caveat Emptor is right out of the window; I am not making any comment of the validity or quality of the investment or the advice in that statement, merely noting that the client is not taking any responsibility for their own money. Again the abandonment of a good old British institution.

Then there is the question of why PI, or some other form of, Insurance is not picking up the tab.

We have a well publicised crisis in the making on State Pensions, or all varieties, because they are unfunded.

We are in the middle of a major financial crisis because there has be no risk management fund in existence.

Yet we still do not appear to learned enough lessons to ensure that there is adequate forward funding for these problems. If the funding were linked to the risk management of a companies sales portfolio then good advisers would have low premiums and poor ones would pay more. In old fashion parlance this is known as rewarding quality, and is a great incentive to do things properly.

But why should advisers do things properly. There is actually little reward, because they will be heavily penalised for the actions of miscreants over which they have no control. And they will be told after the event.

The current FSA regime is dysfunctional. It's intentions may be good, but its failure to grasp commercial reality means that its actions almost invariably lead to the opposite result to that intended.