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Advisers face extra £38m in FSCS Arch cru costs

Advisers have been dealt another blow by the Financial Services Compensation Scheme as it forecasts a further £38.3m will be needed to cover the cost of compensating CF Arch cru investors.

The FSCS published its plan and budget last month, which included indicative figures on the FSCS levies to be collected from advisers for 2012/13.

It estimated the investment intermediation sub-class faced an annual FSCS levy of £33m out of a total annual levy of £221m.

The estimated levy had factored in compensation claims for Keydata, Wills and Co, and Arch cru.

But in an announcement today, the FSCS says the annual levy for 2012/13 for advisers across both the life and pensions intermediation and investment intermediation sub-classes is likely to be pushed up by a total of £38.3m in relation to Arch cru claims.

This follows a £60m interim FSCS levy on investment intermediaries for 2011/12 announced last month, on top of an annual £34m levy for this period.

The FSCS says it has now decided how it will compensate eligible claims against advisers who recommended CF Arch cru funds that are no longer trading.

It says it will be paying out more compensation and more claims than it initially expected in relation to Arch cru.

The FSCS says it has sought external expert advice on the residual value of the funds.

It says while the FSCS is satisfied the funds have been valued on a reasonable basis, the nature of the underlying assets means there is uncertainty about the amounts investors will eventually get back through the wind-down process of the funds.

The FSCS does not believe that investors should have to wait until that wind-down is complete to receive compensation. It will make interim payments now and then, if necessary, make top-up payments once the CF Arch cru wind-down process is completed. This is expected to be in 2015.

Interim payments will also take into account compensation due to consumers from the £54m payment scheme agreed by the FSA with Capita, BNY Mellon and HSBC in last June, regardless of whether an investor has actually claimed or received this sum.

Based on the advice the FSCS has received, interim payments assume the value of a claimant’s investment in a CF Arch cru sub-fund on the basis of the most recently published net asset value for that sub-fund, plus a premium of 12 per cent. This approach aims to maximise the immediate payout to investors while minimising the risk of FSCS paying too much compensation if the funds realise more than expected.

The FSCS says: “We expect the levy resulting from CF Arch cru to fall to the life and pensions intermediation and investments intermediation sectors. The FSCS will be publishing shortly its final levy decisions for 2012/13. Compensating CF Arch cru claimants on the basis described in this update is expected to add around £38.3m to the indicative numbers published in the FSCS plan and budget 2012/13.”

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. Great stuff – just off to get my cheque book.

    It’s still warm and raring to go after paying the latest levy last week…

  2. Regulator falls asleep on the job and FSCS help themselves to our money to compensate investors. Any political party that comes up with a sensible solution to this intolerable mess will get my vote.

  3. What a mess and what happens when 30% of IFA’s pack up come RDR, does that mean the remaining IFA’s will have a 30% increase in their FSCS open ended costs?

  4. ….then take away the number you first thought of and multiply by the phase of the moon and your ganny’s birthday. Don’t forget VAT, whether it is payable or not, and then….

    get someone else (preferably someone who has never heard of the investment, wouldn’t have touched it with a bargepole if they had, and who has absolutely no right of complaint or protest) to pay for it…….

    …..Whether or not compensation is due in the first place……

    Roll on retirement.

  5. Cool. It will save us worrying what to do with spare money, thank Heavens for that.

  6. You really couldn’t make it up!

    The cowboys go around flogging this crap, designed and marketed by charlatans, secure in the knowledge that the buffoons at the FSA couldn’t give a toss because their minions at the FSCS will rescue the clients who’ve been screwed by dumping the cost on the rest of us, who, not being terribly bright, had a look at what was on offer, didn’t a) like or b) believe it and decided that we wouldn’t touch with a bargepole.

    Meanwhile the supremely well paid and cosseted Management at the FSA maintained that, despite their brief to protect consumers (Ha!) ‘they were not there to dictate product design’

    Oh no? So what the hell were/are they there for then? The satisfactory, clear and honest design and marketing of a product is at the core of consumer protection, is it not?

    I need to go now, got to find something to kick!

  7. Alistair Paterson 3rd April 2012 at 8:09 pm

    For the first time in my 32 year long, complaint free career, I have already begun longing for retirement.

    You simply couldn’t make this up. When are all IFA’s ever going to form a united front and fight our corner more effectively through targetted parliamentary lobbying.

    This constant money grab simply has to stop or it will be FSCS levies that eventually drives most small firms out of business, long before excessive regulation and the farcical RDR fiasco do so.

  8. Would somebody please enlighten me as to why any bill should fall on the Life and Pensions sub-group?

  9. It has never been as bad and insecure as this, and this is on top of fighting to keep your business afloat, pure madness and the only thing that keeps one going is lack of options to get out! God help us!

  10. You are all being remarkably cool-headed. Surely we are becoming a complete joke…next business venture stand up comedian anyone? Can’t we make it a cool £50mil between friends? Something about breweries and organisation comes to mind..

  11. It is now time to say enough is enough – we are all honourable practitioners and probably agree with the FSCS in principle, but why should the baker pay for the food poisening caused by the butcher.

    Its time for everyone to write to their MP and tell them to look into this open ended commitment and do something quick before there is no financial services industry left. The end result of which will be more people financially unaware and then more dependent on the state with all the problems that would cause to our already fragile economy.

  12. Surely these allegedly highly educated and resourceful people at the FSA could come up with a better solution to consumer losses than this.

    Neither intermediaries or providers screwed up this company, it beggars belief that we should foot the bill.

    What are the CEO’s of providers and networks doing about this injustice.

    Simple answer – nothing, because it is a matter of put up, pay up and shut up.

    As for railing against the advisers who allegedly advised on this, pointless exercise, in a whole of market scenario and via appropriate research it was at the time it was recommended, probably one of the better looking funds, now it isn’t.

    (Incidentally I did not recommend this fund to anyone, prefer With Profits and Bond funds as sensible, prudent long term investments)

  13. IFAs need a strong professional body with teeth that can act against misconduct from within – like the BMA do with doctors. (don’t use Shipman as the example to destroy the analogy)

    When poor practice is seen from within it could be whistleblown to the BFAA (work it out) who could hold disciplinary hearings and exit poor practitioners.

    The alternative is the unsatisfactory status quo, highlighted in the article and accompanying comments.

    However, to come together will require courage and leadership and the petty infighting over AIFA/Adviser Alliance/the others has so far shown an inability to rise up above the detail and come together as a professional force for good.

    Who has the leadership and courage to take this on?

  14. I think Dominic is spot on !!

    We are being just to cool headed, and the powers that be (FSA Government FSCS etc etc etc) just see us as a joke. They must sit there in the board room slurpin their tea and munching on the hobnobs laughing their +~~@@~ arse’s off.

    We are nothing more than £50 a time hookers to them treated like sh1t and the more we earn the more they take never to be free.

  15. Anonymous | 4 Apr 2012 8:59 am

    It’ll never happen! Staying in the industry is suicide!

  16. I just received my bill for this absolute joke.

    Like many, I did not sell that rubbish in first place and do not agree that I should pay for the idiocy of those that did and to send me a bill that displays must be payable within 30 days or a £250 fine is ridiculous.

    I am 32 years old and I am seriously thinking of selling up and jacking this lot in. I enjoy meeting people and helping them out and they really do appreciate it, I also enjoy being around the people I work with but at the end of the day I need to do whats right for my families future.

    The FSA want younger people in the industry, well this is just not going to happen with this type of money grabbing going on.

  17. I have just been advised of a new word in the english language; ineptocracy (in-ep-toc’-ra-cy)

    ‘A system of government where the least capable to lead are elected or chosen by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with good and services paid for by the confiscated wealth of a diminishing number of producers’.

    DOES ANY OF THIS SOUND FAMILIAR!

  18. But ArchCru was a provider wasn’t it? So why are intermediaries being shafted yet again to pay for clearing up the mess?

    How Hector Sants can sit before the TSC and, with a straight face, claim that the FSA has no prejudicial agenda against small IFA’s is beyond comprehension. Oh, I forgot ~ Shelia Nicoll did the smirking for him.

  19. I wish all those who take time to comment and the rest of the IFA population would stop bleeting and start taking some action!!! If we all refuse to pay it, what are they going to do, suspend us all!!

    Hector Sants stated he wanted the industry to be scared of the FSA when all he really wanted was a ‘free for all’ to let them do what the hell they like, and WE are letting them do it. Speaker on radio 4 this morning from the USA stated FSA was and is NOT fit for purpouse and guess what WE all know it but we keep paying the fees because we are scared of them. We all know if the FSA came into our offices no matter how good our paperwork was they would find something, anything to justify their existence. This is the final straw for me even after being level 4 qualified I’m out. Thinking of setting up a company to support IFAs and give you all a kick up the backside, but knowing that this has already been done and little support given to this Company realise we deserve everything the FSA do to us. As previously stated the EU and the Government want IFA’s closed down, we are too difficult to regulate and the Government don’t earn much from us hence the introduction of VAT. I predict we will not exist in 10 years time as RDR is not the end of the saga! Anyone prepared to placve a bet on it???

  20. And, to think we had people posting in the last couple of weeks what a great job Mr H Sants did at the FSA and how he oversaw the transition to greatness sorting out that dysfunctional organisation called the FSA. It seems to me they should be sacking the likes of him never mind allowing him to leave on gardening leave with salary and bonuses intact. They have us over a barrel and it doesn’t matter how many letters we write to our MP’s they can levy any charge they like against us and we have no option but to pay. I’m 57, like everyone else have to up skill to level 4 and wonder why I’m even bothering because this is just getting worse and worse with no respite in sight. IFA-RIP.

  21. Arch Financial Products LLP had the investment mandate for the CF Arch Cru funds and they chose to invest in Arch Guernsey ICC Limited and its cell companies quoted on the Channel Islands Stock Exchange.

    Once monies were received by Arch Guernsey ICC Limited then again Arch Financial Products LLP had the investment mandate to decide how monies were invested.

    Robert Stephen Addison the Chief Operating Officer of Arch Financial Products LLP was also a Director of Arch Guernsey ICC Limited.

    Therefore Arch Financial Products LLP and its Directors had complete control over investment and pricing in the UK and Guernsey.

    This arrangement was fully authorised by the FSA and administered by CAPITA Financial Managers as ACD.

    The new board of the Guernsey Cell company have launched a £150 million law suit against Arch Financial Products LLP in December 2011 for mismanagement and mispricing of the Guernsey Cell company.

    The FSCS wrote to an investor in September 2011 and below is an extract from the FSCS letter –

    “Arch Financial Products LLP (Arch Financial) fulfilled the role of Investment Manager, with certain responsibilities for how the investment was established and managed. Based on the information seen by the FSCS it appears any losses you have incurred in relation to your investment may have related to Arch Financials management of the fund.

    Arch Financial is still trading and as such the FSCS is unable to consider claims against it. Your claim in relation to losses should therefore be referred to this entity.”

    My belief was that the FSCS could only pay out if the company in default were responsible for the loss suffered by the investor. So how can the actual loss have been caused by the adviser given the above information.

    There is a clear distinction between advice and loss. There are undoubtedly cases of bad advice in relation to CF Arch Cru when you hear of 100% of an investor’s portfolio in the funds and the FSA should investigate these, but that did not cause the loss in this issue.

  22. The FSCS and the FSA have conspired to time the levy so that it does not exceed the £100 million limit where fund management groups would have to contribute. The last time the FSA/FSCS tried to get fund managers to contribute to a large levy they were told to p**s off! IFA’s should refuse to pay because the reality of the situation is that the fund failure is due to management and regulatory failure. There is a £150 million court case against the fund manager which indicates that there is a strong possibility that there were irregularities in the way the funds were managed – so investment managers should cover the cost.

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