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Five-man IFA costs advisers £16m as FSCS bill rises

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Five-man IFA costs advisers £16m as FSCS bill rises

The Financial Services Compensation Scheme (FSCS) bill has now paid out £16 million in claims against the collapsed advice firm Cherish Wealth Management. 

An investigation by New Model Adviser® last December revealed how the Solihull-based Cherish Wealth Management, an appointed representative of Shah Wealth Management that employed five advisers, was responsible for £7 million of pay outs from the industry funded FSCS. 

Just three months later that bill has shot up to £16 million, as nearly 1,600 clients have had claims upheld against the company. This included £11 million in Sipp claims and £4.2 million in personal pension transfers.

Payouts are likely to rise further as 188 claims are still to be decided, while some clients with successful claims are waiting to discover if there is any chance of getting money back from unregulated investments. If there is not they will receive higher compensation payments from the lifeboat fund. 

The fact that one small firm was responsible for such a large number of claims once again raises questions for the Financial Conduct Authority. Other advisers are paying for claims in the form of FSCS levies, which continue to rise. 

New Model Adviser® uncovered that the the firm was advising a large number of clients to invest in unregulated investment schemes, some of which were created by the firm’s founder, Steven Wright. The advice to invest in the schemes was given after Wright left Cherish in November 2011.

These mainly overseas-based property investments, which were created by Wright after he left Cherish, included:

  • Brisa Investments;
  • Lakeview UK Investments;
  • Invest US;
  • Tambaba Investment

Wright said in 2016 there was ‘no conflict of interest’ with Cherish’s advice over InvestUS as he had left the advice business at that point. 

A breakdown of the FSCS claims can be seen here.

  upheld in progress rejected
Invest US 452 63 30
Lakeview UK Investments 126 8 13
Brisa Investments 121 7 10
Tambaba Investments 36 1 6

 

These claims only make up a proportion of the total of 1,973 claims over the firm (1,598 upheld, 188 in progress and 187 rejected).  

The reason for the total pay-outs to date being relatively small compared to the 1,598 upheld complaints is likely to be because the FSCS has not valued all the investments down, meaning it will not pay out full compensation for these investments yet. However if the FSCS does value more investments down the FSCS pay-outs are likely to rise further. 

Since New Model Adviser® last reported on the issue there have been worrying signs about some of the investments.

Last November the auditors for Brisa Investments and Tambaba Investments resigned, as the auditor PKF LittleJohn said ‘we do not believe that sufficient and appropriate audit evidence will be available in order for us to report on the company’s financial statements for the year ended 30 March 2017’.

Since then new auditors have been appointed to Brisa Investments, and Tambaba Investments. However in the accounts for these investments published in January the new auditors pointed to a shortage of information from the firms which the schemes lent money on to.

New Model Adviser® has approached Wright for comment however he did not respond. Previously Wright has said he was ‘not privy to Cherish’s advice or charges to its clients’ as he was not at the firm at that time.

‘Decisions about its investments in any product it selected, in accordance with the rules that apply to a regulated financial services company, were clearly its own decisions. If Cherish failed in those duties, it has nothing to do with Wright,’ a spokesman for Wright said.

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