Berkeley Berry Birch has been forced to pump £14m into Berry Birch & Noble Financial Services to meet its misselling liabilities.
BBB chairman and chief executive Cliff Lockyer says an agreement had been reached with the FSA to cover any pension review liabilities – which reached £8.4m in total – in the reverse takeover of BBNFS.
But Lockyer says he did not foresee the extent of mortgage endowment misselling and other historical claims which have proved to be a significant drain on capital.
This has made dealing with BBNFS claims especially difficult because of poor and sometimes non-existent file records, says Lockyer.
BBNFS was already in financial difficulties and facing capital adequacy issues when it was absorbed by Berkeley Independent Advisers in 2001 he says.
When BIA took over the firm in 2001 and later created BBB, it agreed with the FSA that the enlarged firm would take on its pension review liabilities. At the time of the merger, only 15 per cent of BBNFS's pension review liabilities had been processed.
Before the merger, BBNFS was one of only a handful of listed IFAs, having around 50 RIs and was valued at £6.5m. BIA holding company Berkeley Financial Services group was valued at around £73m at the time it embarked upon the reverse takeover.
BBB chairman and chief executive Cliff Lockyer says: “With Berry Birch & Noble, we are a sitting duck when it comes to complaints. When we open up the file we often find there is nothing there. The fact that there has often been no file-keeping has led to lots of claims. If we had not stepped in, BBN would have had days to live.”