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Anger as Lifemark levy looms for IFAs

Advisers are furious at facing another big Financial Services Compensation Scheme Keydata levy.

The FSCS said this week it would compensate Lifemark investors who were placed in its traded life policy bonds via failed structured product provider Keydata. It says it is still unclear how much Lifemark investors have lost but that this uncertainty should not delay the claim process. A further update on compensation calculations will be given next month. Around 23,000 savers, who invested about £349m in Lifemark, could be entitled to claim up to £50,000 each in compensation.

In March, intermediaries were hit with an £80m levy for 2009/10, the majority relating to Keydata subsidiary SLS Capital after the FSCS controversially classed Keydata as an intermediary. Regulatory Legal is pursuing a judicial review on behalf of a large group of advisers, with a court date set for the beginning of November.

The current investment intermediary levy for 2010/11 is £24m. Lifemark compensation claims, alongside claims relating to A2O, Wills & Co and Integrity could lead to the sub-class breaching the maximum £100m levy. If this occurs, further claims will fall on the investment provider sub-class. If total claims for the investment class rise above £370m, further claims will be paid by the rest of the industry.

Aifa director Robert Sinclair says he hopes the claims can be dealt with quickly in one single chargeable year to ensure costs are shared with providers.

If the FSCS compensates Lifemark investors, it will take over their exposure to the portfolios and any future returns could be passed to investors who lost over £50,000 or rebated to the industry. The scheme may seek to regain costs from advisers who sold Keydata Lifemark products.

Lowes Financial Management managing director Ian Lowes says: “We could have sold millions of pounds of these investments but we took a view the risks were not properly described in the marketing literature. Most IFAs were nothing to do with this but will have to foot the bill.”

Informed Choice managing director Martin Bamford says: “I would like to see the FSA aggressively pursue those individual advisers and firms responsible for advising on this investment scheme. I hope that innocent adviser firms are not driven out of business by the next levy created by irresponsible advisers.

“There are multiple issues to be addressed here, including the role of the FSA in approving and regulating Keydata and placing Keydata in the investment intermediation category.”

Skerritt Consultants head of investments Andrew Merricks says: “Yet again, we are paying for other people’s mistakes. I wish people would think about what they are recommending.”

Meanwhile, Norwich & Peterborough Building Society chief executive Matthew Bullock is to push ahead with his Lifemark bailout efforts despite the FSCS’s decision to compensate investors.

N&P is leading a group of advisers, including Vintage Financial, who have decided to continue to work on a lifeline for Lifemark as Financial Services Compensation Scheme payouts are capped at £50,000.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. So lets look at this. Advisers who having done due diligence on a product decided not to recommend it to clients are being asked to bail out the clients of Advisers who did.

    So where is the reward for carrying out due diligence – none.

    Once again the FSA was asleep on the job and its advisers that have to pick up the tab.

    What a whacky world we live in.

  2. Does the FSA not have any duty of care to those it regulates?

  3. Surely the time has come for the FSA, Government, industry to look at how the FSCS is funded.

    Maybe it is time for the FSA to licence and risk rpodicts as they come to market, with each product carrying a levy (based on risk) to fund the FSCS.

    It is unfair that diligent IFAs continue to be expected to cover the liabilities of others. Would TESCO be expected to bail out Sainsbury’s customers?

  4. The Napalm approach – a quick fix to punnish the guilty without thought to the innocent casualties!

  5. It has to be the advisory firms who recommended these products that carry the can for their advice. That is the reason for PI insurance and advisers must take responsibility for their advice. However, if the FSCS takes over the portfolios, then any eventual returns should go back to the industry alone, otherwise there will not be an advisory industry left and all products will need to be “client informed choices”. The levies paid by my firm, which is a small regional IFA, over the last year equates to 85 hours work @ £175. So I work two weeks for nothing to pay for the incompetence of others in an industry that is meant to be governed by the FSA, whose wages I also pay for. No wonder IFAs, and good quality ones at that, are likely to leave the industry in the next few years. Rewards for quality, independent professional advice ?…….. here’s a bill to pay out of your own pocket for something that is nothing to do with you. Oh yes please, great incentivisation !!

  6. I wonder whether the majority are being milked to keep the minority afloat.

    If I was still authorised and subject to this grossly unfair compensation machine I would make the lives of the regulators and their political masters very miserable indeed.

    In fact if enough people were willing to support a resurrected IFA Defence Union I would gladly kick some bottoms (posh for you know what).

    But it isn’t going to happen, I of all people should know that you lot are like a herd of cats, this is why you are in this pickle which is going to become your prison, and theirs.

  7. All this to save N&P?

  8. At the very least, every investor who is compensated should have to name the advisory firm who made the recommendation, and that firm should be made to pay the commission which was earned to the FSCS to help meet the total compensation bill.

    At least this way, those responsible for the mess will not profit. Otherwise, those advisers who did sell this product, and who are allowed to keep their commission, will still make a healthy profit even after paying their share of the compensation bill.

  9. I know – why not make the IFA community pay for the entire banking bailout too.

  10. I do have some sympathy for any investor whose income stream has died out. However, as I read it I fail to see how correct compensation can be worked out at this point in time. Other comentators above are right – if the FSA continues to allow some to flaunt the rules and then expect those that are sticking to the rules to pick up the compensation bill, soon there won’t be any responsible adviser left. The local news last night featured a lady who claimed to have invested £350,000 from the proceeds of a business sale in a Lifemark bond through N&P. How the Hell did that get past the internal compliance people?

  11. How angry are advisers ?

    Are they really angry ?

    Support for our judicial review suggests that the vast bulk of people are more likely to moan than do something.

  12. It would be interesting to see the due diligence that those with a holier than though view of their peers have and what specifics they found that meant they chose not to advise clients to have the Keydata Secure Income plans uncovered.
    I suspect it uncovered NOTHING specific at the time and it was a gut instinct that resulted in them shying away from reccomending them as I did for the first few issues of Keydata’s Secure Income plans.
    I have posted this anon as my firm has 9 clients with a total of about £150k in Keydata plans. The PI excess is £5k per claim, so if it is deemed my fault, this will be expensive for me.

  13. sorry anonymous 2:33 but gut feel and experience is what it is all about – not exams and certainly not flavor of the month attitude to risk questionnaires.

    all of the major scandals of the last 25 years could have and should have been avoided by advisers simply taking time out to think about the longer term and less about money in the pocket right now.

    If that is holier than thou then so be it

  14. I do believe that it is fair and reasonable to require repayment of all commission paid on failed Keydata plans direct to the FSCS as an offset against what is still a grave miscarriage of natural justice.

    Oh yes, Gareth, having sent you my few quid perhaps you could drop me an e-mail to tell me when we get to see the show.

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