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Adviser secures 99% Keydata settlement discount


Adviser firm Financial Escape has agreed a 99 per cent settlement discount with the Financial Services Compensation Scheme over client recommendations to invest in Keydata.

Financial Escape’s annual results to the end of March, published on Companies House last week, show the firm paid £400 to the FSCS after an out of court settlement was agreed between the two parties. The FSCS had lodged an original claim against Financial Escape of £64,000, as part of its legal bid to pursue advisers to recoup some of the compensation paid to Keydata investors.

The results say the payment was made “in full and final settlement without acceptance of any fault or liability on the part of the company, its directors or employees”.

Money Marketing revealed the FSCS had offered at least one 99 per cent discount on Keydata liabilities in April. The full details of Castle’s discount can be revealed now the firm’s results have been published.   

Financial Escape advised 12 clients to invest a total of £120,000 into Keydata, but the FSCS chose to pursue a smaller amount as part of its strategy of offering firms early settlement discounts.

Financial Escape recommended Keydata to diversify clients’ investments, and in most cases Keydata represented up to 10 per cent of a client’s portfolio. The company says it has not received any complaints from clients about its Keydata recommendations.

Financial Escape director Phil Castle says: “Our capital adequacy requirements are only £10,000. We notified the FSA when we received the letter from the FSCS that the legal costs of defending the claim would have exceeded our capital adequacy requirements. That does not seem just.” 

An FSCS spokesman says: “The FSCS must pursue recoveries wherever reasonably possible and cost effective to do so.  We are pursuing recoveries from firms in connection with the Keydata products and are confident that a court will find in our favour if the matter proceeds to trial.

“However, the FSCS must also be pragmatic and commercial in its approach and accordingly, taking account various factors such as the financial position of a firm, an agreement may be reached for settlement of the claim for less than its full value.

“This does not reflect the FSCS’s views of the merits of the claim, but rather its obligation to only pursue recoveries where it would be cost effective.”


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. If this is indicative of the deals now being done, then it is time for the FSCS to finally admit that its decision to take action against advisory firms was ill-judged and doomed to failure.

    With only the lawyers benefitting, those at the FSCS responsible for this farce should resign.

  2. David Maxwell 30th May 2013 at 1:40 pm

    Oh, cheers Mr Castle – you sell the c**p, keep the commission and the rest of us will pick up your tab via FSCS levies.

    Nice work pal

  3. This makes a bit a bit of a mockery of the term ‘Capital Adequacy’ if it is not even sufficient to cost the legal costs of a single claim.

  4. @Mr Maxwell, I supose you warned your clients to get out of RBS too so that taxpayers would save a bit of money on that bailout…

  5. How very odd. I offered around 10% ages ago through my lawyers and haven’t even had the courtesy of a response – even after reminders.
    And before Mr Maxwell jumps to conclusions, I only had three clients. Each one invested less than 10% of assets and were all made fully aware of risk factors. The only risk of which they – and I – were unaware was that some spiv would abscond with the money.

    I can’t speak for Phil Castle, but you should realise that for some of us the FSCS action is blackmail. We may not be culpable, but nevertheless we have to engage lawyers at significant cost. If pressed to court we may well be able to show that the advice was not negligent and hope that we can recoup our costs from the plaintiff. Law in the UK is always a lottery and always works best for those with the biggest wallets – so our offers are in effect protection money so that we can get the buggers off our back and get on with our lives.

    Perhaps this puts a somewhat different light on things?

  6. Fed up with know it all's 30th May 2013 at 2:39 pm

    @ Mr Maxwell, reminds me of another Mr Maxwell, that went down with his Ship! The Keydata was nothing to do with advice, as you well know, if you don’t know, don’t comment on it, with your poison!

  7. Again we need to differentiate between the initial advice given and any subsequent alleged fraud. The FOS Reports on complaints against two advisers who advised on Keydata makes interesting reading. It was very clear from the Key Features that there was a risk that investors could lose some money and indeed there were other features of the products that made them unsuitable for cautious investors. To quote the Ombudsman “…. I think it is (and was) clear from this description – and from the other information readily available to the IFA about the bond in 2005 – that it was not predominantly a cash investment. The bond presented some risk to capital. The product literature expressly stated that capital was not guaranteed.”

    He goes on “Indeed, thinking about the Keydata investments, and given only what was known (or should have been known) to the adviser at the relevant time, I have real doubt – given the opaque nature of the investments and the significant uncertainty around accurate valuation and liquidity – whether such a fund would have been suitable for all but the most experienced of retail investors, and certainly not for investors such as Mr W.
    It was important for advisers to take these matters into account, when assessing the suitability of the product for an individual investor, and for potential investors to understand that the fund presented a significant risk to their funds – certainly far more risk than an ordinary cash fund.
    It is not sufficient for the adviser to assert simply that they relied on the headline description of the investment when making their assessment of suitability. Rather, they should be exercising professional judgement about the inherent nature of the investment and its suitability for their client’s particular investment needs.”

    It is therefore not unreasonable to feel some sympathy for the comments made by David Maxwell that yet again advisers are picking up the bill for others who should not have sold them in the first place.

  8. So those that can afford it are charged more than those that cant.

    Not very fair me thinks.

    Like a tax on successful companies to support less successful ones.

  9. Fed up with know it all's 30th May 2013 at 3:56 pm

    @ S Caunt, “The product literature expressly stated that capital was not guaranteed.”
    This is not true of all tranches of Keydata plans, a number had on keyfact, Capital is fully protected & Guaranteed, so once again I would say – if you don’t know, don’t comment on it

  10. Two active David Maxwell’s on the FCA register, please clarify which one you are?
    DAM01126 Mr David Anthony Stuart Maxwell Active
    DFM01057 Mr David Forbes Maxwell Active

  11. @ Anonymous | 30 May 2013 3:33 pm I do not believe in censorship hence if you want to post under you real name being critical as Sam Caunt has done, feel free, but please do not post anon.
    If Sam wants to call me, he can find me on the FCA register as can David Maxwell. As they will know I cannot discuss the settlement as it would be a contempt of court, but I can stick to the facts if they wish to call me which is more than the FSA or FCA have done with Keydata even now.

  12. There were other factors apart from the use of the word guarantee that made these products dubious. And where the word guarantee was used there were other indicators that these were not guaranteed – who was providing the guarantee? The point I am making is that we must be very careful to separate the poor advice from the promotion and management of these funds. As with Arch Cru, too many advisers are blaming others when in fact they did not do the job properly in the first place. I believe the FOS rejected one complaint against an adviser regarding Keydata so it is not a clear and cut issue. (and why the article is unfair on Phil Castle)
    But this does raise a more irritating point and that is what is the purpose of capital adequacy? In truth it is to ensure a smooth run off a closing down of the business – 3 months of expenses to run down the business in that time. However, we take the view that if we had to pay a significant amount of money to compensate clients we could because we take the view it is right to hold assets to do this. TCF. However, my view now is moving to stuff it – keep the minimum of assets in the business. Strip out the cash…..

  13. @ Sam

    Couldn’t agree more !

  14. Why isn’t the regulator taking the professional indemnity insurers to task?

    What is PI for? To line the pockets of the brokers and underwriters?

    The regulator insists on PI cover yet does nothing when the insurers shirk their responsibilities.

    Phil should have come to me to make a claim, via FOS if necessary.

  15. @Evan – Thanks for the offer. There was logic and method to what may appear to have been madness.
    The FSA and now the FCA always go on about outcomes and that is what is relevant for those in business.

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