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Brokers facing a flood of claims on Eurolife bonds

IFAs that sold Eurolife secured bonds could face a flood of complaints with Eurolife Assurance Group going into administration just 18 months after reaching a compromise deal with investors.Around 2,000 policyholders, who invested a total of 17m in the bonds in 1999 which went into default last year, are now waiting to see how much money is generated from the sale of holding company EAG’s assets.Administrator FA Simms is investigating the situation and will hold a preliminary meeting with creditors within the next seven weeks.It has set up a helpline but investors will have no recourse to the Financial Services Compensation Scheme as Eurolife Capital Funding, the subsidiary which issued the bond, was never authorised by the FSA.This has heightened fears that investors will choose to pursue complaints against IFAs that sold the bonds, even if their losses were caused by any problems at Eurolife.The bonds were sold within an Isa wrapper and structured as a loan to holding company Eurolife Assurance Group which became dogged by controversy.In June 2000, the FSA launched regulatory action against EAC over concerns that the business was “not being soundly and prudently managed” and stopped it writing new business.Although chairman Lynne Green and founder David Wootton, who has since died, vehemently denied the allegations, they struck a compromise deal with the FSA in 2002 which allowed the company to resume trading if they both stepped down from their roles.
The deal was widely regarded as a fudge, allowing Green to remain on the board and Wootton eventually to engineer a restructuring package to salvage some of the policyholders’ investments after the bond defaulted last February.The group become drawn into further controversy when the FSA withdrew permission from Tower Assurance Advisory Services, Eurolife’s IFA arm, in June this year.Bestinvest head of communications Justin Modray believes the Eurolife fiasco will “open the floodgates” to complaints against IFAs.He says: “You have to question the nature of the FSA’s investigation into EAC and the fact they allowed it to continue trading. Maybe the FSA could have nipped this in the bud earlier although it is easy to say that in hindsight.”Regulation consultant Adam Samuel says: “You have to ask whether firms should be allowed to market ’guaranteed’ products in the UK when the FSA has no way of policing the financial health of the company hidden behind those guarantees.”Plan Invest joint managing director Michael Owen says: “I think IFAs that sold the bonds have a strong defence because they cannot be blamed for any alleged maladministration at Eurolife.”An FSA spokeswoman says: “There were problems with EAC in 2002 but we must have been happy with them to allow them to continue trading until 2005. If we were not happy, then we would have taken enforcement action.”The administrators were unavailable for comment.Immediately before the tribunal, Wootton resigns as managing director of parent company Eurolife Assurance Group as part of compromise agreement with the FSA. Wootton agrees not to seek another senior position in the financial services industry. Lynne Green resigns as chairman, although she remains on the board. Regulatory action dropped and EAC allowed to write new business.EUROLIFE FALLOUTLate 1999
Eurolife subsidiary Eurolife Capital Funding sold Eurolife Secured bonds predominantly within an Isa wrapper. Product structured as debt, giving investors a specified return payable on maturity. Raises about 17m, lent to Eurolife Assurance Group with the loan due to be repaid in 2005. Offers 6.5 per cent income for five and a half years or 40 per cent growth, in each case with capital protection. Majority of products sold through advisers.June 2000
FSA launches regulatory action against EAC over concerns that “the business of EAC was not being soundly and prudently managed.” It questions usage of investors’ money and group’s ability to match liabilities. It also expresses concerns arising from reports that money raised from the bond issue was being used improperly to make up shortfalls in property-linked funds in one of the group’s Gibraltar-based subsidiaries. EAC and directors dispute actions and referred them to the Financial Services and Markets Tribunal. Chairman Lynne Green says bondholders will not bear the cost of the losses. She says shareholders, including herself nd managing director David Wootton funded the losses.July 2001
FSA orders EAC to stop writing new business.July 29, 2002
Eurolife Fund Managers rebrands as Nvesta to distance itself from the rest of the structured products market. September 2002
Immediately before the tribunal, Wooton resigns as managing director of parent company Eurolife Assurance Group as part of compromise agreement with the FSA. Wooton agrees not to seek another senior position in the financial services industry. Lynne Green resigns as chairman, although she remains on the board. Regulatory action dropped and EAC allowed to write new business.December 31, 2004
Subsidiary company Nvesta warns investors they are unlikely to receive any payment on the stated maturity date of January 23, 2005. Nvesta director Graham Deville denies liability, saying: “Our staff and our company was not in existence when this bond was sold.”February 2005
Bond goes into default when group is unable to make repayments. Eurolife Assurance Company is sold to Reliance Mutual to free up assets of around 10m.March 2005
Eurolife Secured Bond investors vote narrowly in favour of restructuring proposals to return their initial capital over the next five and a half years. Eurolife rolls out restructuring plan and saves more than 1m in compensation. Five hundred investors choose immediate payment.Alternative of staggered payments is offered. Eurolife looking to repay a minimum of 60 per cent of what investors are owed, including expected growth in annual instalments until 2010.April 2005
David Wootton dies.June 2006
FSA withdraws permission from adviser subsidiary Tower Assurance Advisory Services

August 2006
Eurolife Assurance Group falls into administration just 18 months after restructuring deal is signed, with 2,000 investors potentially left out of pocket. Subsidiary Nvesta remains solvent although a spokesman says it will not be marketing new products for time being. Assets of 12,000 investors with Nvesta, which marketed equity-based structured products, are apparently safe as they are ringfenced and will not be hit by the group’s financial problems Eurolife Assurance Group is not regulated by the FSA so claims will not fall on the Financial Services Compensation Scheme. Fears are raised that IFAs will bear the brunt of claims.


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Norwich Union is launching a TV campaign this week supported by new press and outdoor ads. The aim is to raise NU’s profile as an investment provider and will use more product-specific ads than in the past.

Crisis, what commission

He says industry analyst Ned Cazalet, in his report Polly Put The Kettle On, have sparked a debate about the amounts that product providers are paying out to IFAs in up-front commission that is only serving to distract from the issues that life offices ought to be focusing on.


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