Keydata levy is an outrage against IFAs
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Nic Cicutti says it is clear that Keydata was not being effectively regulated by the FSA.
A few years ago, around mid-2007, I received a call on my mobile from a PR person. Did I know anything about a company called Keydata?
I was forced to confess that I didn’t. I had a vague idea that the firm was involved in the marketing and selling of structured products but these had never been an area of great interest to me so I had sort of let the business pass me by.
The PR person offered me the opportunity to meet with directors at Keydata, whom I was told were very eager to catch up with me. I demurred, this was not the best time, as I had just started a full-time job in North Wales and I was not doing much writing back then, so it would be a big waste of those senior executives’ time, not to mention mine.
What? Didn’t I know that Keydata had won a whole series of awards for its structured products? How could I not want to come down to London and meet them? Did I not realise I was missing a massive opportunity to find out (and presumably write about) the company? I am afraid that the PR person and I parted on bad terms.
I will come back to these blessed awards in a minute, but it is important to realise that Keydata was not prominent on the radar screens of a lot of journalists at the time.
Last summer, as I had a pint with a fellow writer, he told me of his shock at discovering - after the company had collapsed - that it had almost £3bn invested in its various products, a massive chunk of it through the many building societies that it dealt with, either as a provider or an administrator. They included Cheshire, Derbyshire and Dunfermline (now all under the Nationwide umbrella), Leeds Building Society and Royal Bank of Scotland.
What I certainly do not remember being told, as I endured a lengthy accusatory monologue from Keydata’s PR, is that the company was in any sense a financial adviser or intermediary, certainly not in the commonly understood term of that category.
Which is why, when I read last December that Aifa was taking legal advice to see whether it might be able to mount a challenge to the potential Financial Services Compensation Scheme levy on the “investment intermediation category” related to Keydata’s collapse, I naively thought it would not take the FSCS and the FSA between them a nano-second to see that it was nonsensical to make IFAs pay for this firm’s collapse.
How wrong I was. Last week, it was announced that, in addition to Continental and Square Mile, which will cost IFAs a whopping £27m, Keydata’s contribution to the bill that IFAs face having to pay would be a whopping £43m.
As one or two of you may have realised, I am not generally renowned for being a great fan of the IFA industry. However, this levy is an outrage. It offends every sense of natural justice, for a number of reasons.
First, because the more you study what Keydata was up to in the years before it went belly up, the more it becomes apparent it was not being effectively regulated by the FSA, certainly in terms of the category it was regulated under. To not spot that there was something wrong with Keydata in the year or two before it was forced into administration is pathetic.
Even so, it has to be said that no one else comes out of this with any great credit, not even IFAs. After all, it was often IFAs who were selling these structured products to their unsuspecting clients.
A quick trawl through the MoneySavingExpert website forums last week revealed this little gem from one consumer back in mid-2006: “An IFA told me today about a 7.5 per cent Isa with Keydata for five years, and 7.7 per cent for seven years. I’d never heard of it, but was told it is only something accessible to IFAs.”
Moreover, the awards to Keydata I mentioned earlier, which the company proudly boasted of on its website, did not materialise out of nowhere. They were from another trade publication and, as I understand it, are voted on by IFAs.
The company was able to market itself to a significant extent to the public because IFAs were recommending its products to their own clients.
There is no question in my mind that this is an FSCS levy that IFAs should refuse to pay en masse.
The only way that the FSCS will understand that pretending Keydata is in a certain category for the purpose of deciding who pays the bills is not on. Aifa, which supposedly took legal advice in December - and has not said anything else on the subject - must lead on this issue.
But it is equally the case that Keydata’s star would not have burned so brightly had it not been for many financial advisers themselves. In that sense at least, all IFAs are paying for the actions of a minority - as always.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
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Readers' comments (29)
Experienced IFA Man | 24 Feb 2010 4:29 pm
Nic you must be going soft in the head.
However, I am waiting for your next kick in my boll*cks.
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Adam Rowbottom | 24 Feb 2010 4:31 pm
Nic
You are quite right, as an IFA myself, my firm can no doubt expect a £2k contribution demand from the FSA soon for the Keydata saga. Have we ever sold a Keydata policy? answer no... in fact we have advised clients against such products in the past...but now we must pay the price!! Similarly to the stockbroker last year, whom we have never dealt with nor heard of and yet we had to pay over £600 for that disaster as well. The FSA does not monitor anything properly. Its repeated failings confirm this is the case. Here praying the Tories return to power and send the FSA to the wall, in the same way they send legitimate IFAs to the wall every year.
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Julian Stevens | 24 Feb 2010 4:31 pm
Bold words which will doubtless be welcomed by the IFA community, though quite why Mr Cicutti is so generaly dismissive of all the good work done by such a large proportion of us is difficult to fathom.
There are rogues and cowboys in every industry, but most IFA's are diligent, professional and genuinely care about the wellbeing of their clients. Whilst I hold most bottom feeding, muck raking journalists in extremely low esteem, I am also prepared to recognise that many are as professional and condct themselves with the same degree of integrity as many good IFA's. So please don't tar us all with the same brush, Mr Cicutti, just because of a few bad apples in the barrel. To do so says as much about your lack of open mindedness as it does about the ethics of those you seek to criticise.
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Michael Allan | 24 Feb 2010 4:34 pm
What a well balanced and useful argument.
Well done, I hope the FSCS reads your article.
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Michael Fallas | 24 Feb 2010 4:42 pm
This is all about failed regulation.
We pay the regulator huge fees to protect the consumer which is supposed to reduce the risk to ourselves or at least that is how it should work in my opinion.
However the reality is that it does not work and has not worked for years as we pay twice because the regulator fails to stop any wrong doing except with hindsight (after it has happened) so we not only have to pay their costs (which are no massive nearly 1/2 £Billion), but also the costs of the failures.
The FSA cannot lose but we lose all the time and are paying twice for a service that does not work and who accepts no responsibility for their failure.
It is complete madness.
May as well pur our money down the drain as it will have a similar effect.
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Anonymous | 24 Feb 2010 4:43 pm
Surely the Continental and Square mile scenarios are just as unfair on IFA's, particularly the IFA,s who do not hold client monies or try to operate as Fund Managers.How does a Stockbroking Firm get associated with the same sector as a one adviser IFA Firm?
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Simon Mansell | 24 Feb 2010 5:14 pm
Well things must be bad if we have the Witchmaster General - old Nic himself talking about natural justice!
Perhaps he has a real concern that shortly he won't have an independent sector left to undermine - what then Nic?
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Simon Webster | 24 Feb 2010 5:15 pm
Yet again the FSA have demonstrably failed in their fundamental job: consumer protection. They pay themselves more than the majority of those that they are supposed to regulate earn and consistantly fail to do the fundamental parts of their job.
They faff about on how advisers are paid or the cap adequecy of advisers who pose minimal market risk and in so doing divert resources away from those who pose the real market risk. Leaving those who lose/ misappropriate millions in client money to walk away scot free on their watch.
We too are praying for a Tory win and also that they keep their promise and get rid...
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Bob Perry | 24 Feb 2010 5:16 pm
It is scandalous that the IFA community should be asked to pay for the negligence and failure of the FSA to properly regulate Keydate, Continental and Square Mile.
How can Keydata be categorised as an IFA?
Is there also not a great need for "caveat emptor" to come back into play. I suspect many of the public who invested with Keydata, Continental and Square Mile were swayed by headline figures and failed to take notice of the old saying "if it looks too good to be true..........".
Where there has been fraud let the police authorites investigate. Why should my firm constantly be asked to bailout investors who have been misled by crooks or who have fialed to do some research themselves before investing.
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Evan Owen | 24 Feb 2010 5:16 pm
The cheque is in the post Nic, good job.
However, an email I received today from the FSA highlighted the flaws in the system of apportioning the burden(s) of firms 'found in default'.
Any industry representatives who were involved back in 2000 deserve a good knee-capping.
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Evan
As you may know [yes I was told], the whole approach to funding FSCS is under review - and the uncertainty in the current approach is one factor that is being considered. I will make sure your thoughts get fed in. This won't help with the current situation, but may end up with things changing for the future.
However, I should manage your expectations. I was involved with the set up of FSCS back in 2000 and there are only a limited number of approaches to funding compensation and divvying up the costs across firms - and none of them are perfect. At that time, the industry (incl IFAs) were adamant that they didn't want a pre-funded scheme (which is one of the ways of offering more certainty) as they felt they could manage their money better than the FSA.
*************
So, the financial services industry itself is to blame for all the uncertainty? Even if this isn't entirely correct we must make sure that the whole system is designed from the bottom up this time round, anyone else game for this?
By hook or by crook we will have the ear of whoever wins the next election.
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