Firms face huge cost of structured review
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The FSA has announced a far-reaching review of the structured product market and is enforcing retrospective business reviews on some of the biggest sellers which could cost millions of pounds.
It says the review follows the discovery of significant advice failings among the majority of firms sampled in its review of Lehman-backed plans. It has referred three advice firms to enforcement and is telling advisers to review sales of Lehman-backed structured products and pay redress if appropriate.
It is instructing the biggest sellers/advisers to conduct wider reviews of all structured product sales and consider redress and a different sales/advice approach if appropriate.
The FSA found significant advice failings relating to Lehman-backed plans in nine of the 11 advice firms sampled and serious deficiencies in marketing literature by several plan managers, even after Lehman collapsed.
It reviewed 157 advised sales and found 46 per cent to be unsuitable, 23 per cent unclear and 31 per cent suitable. Reasons for unsuitability include failure to meet client needs, inappropriate exposure to risk and failures on tax planning.
The FSA is writing with complaint guidance to all other Lehman plan investors that will not be contacted as a result of the administration of NDFA, DRL and Arc Capital & Income. Arc C&I into administration this week due to liabilities on Lehman-backed products it sold.
Baronworth Investments director Colin Jackson says undertaking a past business review involves huge resources.
He says: “A lot of firms do not have the staff capacity. This is a massive market and if there has been bad advice given, then it will cost millions.”
AWD Chase de Vere says it is not facing enforcement. Head of investments research Justine Fearns says: “Reviews are always expensive and time-consuming but are for the benefit of investors.”
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