IMA wants FSA probe into advisers who sold Keydata
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The Investment Management Association is calling on the FSA to launch an inquiry into advisers who recommended Keydata and Lifemark products.
IMA director of wholesale Guy Sears says because the Financial Services Compensation Scheme has paid compensation directly to investors, some firms that missold Keydata products may have avoided their liability.
In January, the FSCS announced a £326m interim levy, mainly to cover the £247m cost of compensation for Keydata investors. Fund firms paid £233m while advisers paid £93m.
Sears says: “There should be a proper inquiry into what advice distributors gave to establish exactly where the problems arose and where the blame lies. What I find strange in the case of Keydata is that clients have been paid by the FSCS but complaints have not necessarily been raised with the initial adviser.”
AWD Chase de Vere, a Keydata distributor, has upheld at least eight complaints over the way it sold Keydata products.
A spokesman says: “There are lots of questions that are still unanswered about Keydata, including the distribution and regulation of the products and what happened behind the scenes. We need an all-encompassing inquiry covering all these aspects rather than looking at distribution in isolation.”
Philip J Milton & Company managing director Philip Milton says: “I do not believe the average IFA should be lambasted for selling Keydata products. We need to understand what went wrong and the regulator’s role but I would question whether an inquiry is necessary.”
The FSA has written to an undisclosed number of Keydata distributors as part of a wider investigation into how the products were sold.
A judicial review brought by Keydata founder Stewart Ford into the way the FSA investigated the firm will be heard at the High Court in London on July 21.
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Readers' comments (14)
Chris F | 8 Jun 2011 12:38 pm
Call me old fashioned, but why aren't the IMA shouting for the FSA's head on a block when they failed to prevent any of this happening - and they knew about problems well in advance?
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Anonymous | 8 Jun 2011 12:47 pm
The IMA have taken some flack for messing about with the managed sectors and this call for an FSA inquiry may be a welcome distraction but may mean even more expense heaped on over-burdened IFAs.
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Ken Durkin | 8 Jun 2011 1:38 pm
The IMA's problem is structured products. With the FTSE 100 still well below its all-time high there are thousands of dissatisfied investors in unit-linked products. If you can get 5.75% pa income from a product that will still return invested cash after 5 years even if the FTSE100 is up to 50% below its start level - then consider given this scenario how many unit linked funds would not actually lose money...
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Richard Brydon | 8 Jun 2011 1:39 pm
I advised two clients to invest in the Keydata offering, my advice was mainly on two bases:
Traded life policy funds are not something new and other funds have been running for years, albeit in the USA or unregulated. The second basis for my advice was contained in the Key Features. Backtested by one of the largest accountancy companies in the world, the document proclaimed, there was also a reference to an international bank being involved.
Okay, I was duped, I admit it, but if the FSA were previously warned that Keydata was lying, why did the FSA allow the company to continue and dupe more and more of us?
It's the FSA that needs the investigation.
The N&P situation is totally different. They just sold the product to anyone who walked in the door.
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Ken Durkin | 8 Jun 2011 3:30 pm
On Richard's last point, this is the source of the problem. Unsuspecting depositers being tempted into the back office. Moneylenders should not be involved in "financial advice". They should give a customer contact details of three IFAs if they think customers have too much money in deposit accounts.
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keith lewis | 8 Jun 2011 3:42 pm
it would appear to me the IMA &FSA always attack the winkest link ie THE IFA sector itself .Surely the FSA would had to given approval to such a product,surely examined the KF literture ,surely seen the policy as stated earlier had some back testing and could be verified.Another diversion tactic by the crafty civil servants types within the corridors of power ??
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Bob Donaldson | 8 Jun 2011 4:01 pm
My understanding is that in the first instance to obtain compensation from the FSCS the client had to complain to the advisor and have his complaint rejected. Then and only then could they go to the FSCS to claim compensation.
That was the case until recently. Has it changed?
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Gareth Fatchett | 8 Jun 2011 4:13 pm
The FSA 2007 letter to 10 firms was the warning the industry never received.
Now, the problem is that Keydata is deemed to be "high risk" and "complex". Therefore, any advice which does not say "this is high risk and complex" creates a bolt on redress claim.
FSA should have publicised this in 2007. Failing to do so, led to this mess.
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Jason Tithe | 8 Jun 2011 6:57 pm
Agreed Gareth. The FSA must have identified that the products were being marketed as low risk to normal retail investors as part of their 2007 review. They should have warned clients and the industry at the time if they felt this was wrong. They didn't. Either they didn't think the products were high risk (in which case why is it now all of a sudden that they are), or they seriously messed up. The losers in this are investors, IFAs, the IMA etc. The winners are firms who, despite their criticism of the FSA in this respect, are still prepared to merrily pursue redress for clients and claim their 10% success fee.
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Anonymous | 8 Jun 2011 7:28 pm
As a Keydata Victim, it may be obvious why I do not have too much sympathy for the IFA's who sold Keydata. The problem doesn't lie with the practices that recommended or suggested the Keydata product to experienced investors, it is the establishments that sold the product, with or without charging for the 'advice', to inexperienced investors, quite often retired people looking to put their hard earned cash into a safe pension scheme. These IFA's should be hung out to dry in my opinion.
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