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FOS describes investing in Lifemark as gambling

The Financial Ombudsman Service has described investing in Keydata’s Lifemark as “gambling” in a ruling against an IFA who invested a client in the firm.

On September 1, the FOS told the IFA to return £44,000 to executors of the estate of an elderly investor who had 31 per cent of her savings placed in the Keydata secure income plan.

The ruling, seen by Money Marketing, says: “The Keydata investment appears to be dep-endent on the yields obtained from the trading of ’secondhand’ US life insurance policies. In simple terms, investors, principally, are gambling on the longevity of the insured and on the administrators of the sch-emes’ ability to predict that.”

The ruling follows a FOS adjudication in late August that called for Norwich & Peterborough Building Society to repay £28,000 to an elderly Keydata investor. The society is appealing against the decision.

Another ruling earlier this month found that AWD Chase de Vere should repay a client their Keydata investment because the adviser over-exp-osed the client. AWD is also appealing.

Regulatory Legal consultant Michael Cotter, who is acting on behalf of Keydata investors, says: “This adjudication is very clear. Many IFA firms have exposed their clients to significantly more risk than the 20 per cent level in the Chase de Vere adjudication and the 30 per cent level mentioned in this adjudication. If that is the case, then a suitability allegation would succeed.”


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. I ask again, where does the previous 20% and this 30% come from?

    Quasi Judicial FOS making policy on the hoof? Is that fair and reasonable?

    We would of course need to see this adjudication in order to arrive at an informed decision.

  2. I am not trying to condemn or condone the 31% invested as without seeing the whole case I don’t think it would be fair of me to comment on that as I can think of reasons NOT to have exposed that much and reasons for exposing that much and that is why the adviser should know their client (KYC) before reccomending whetehr to do this or not and explain the implications and risks.
    There are risks with everything. Just walking out of the door means you might be hit by a bus or meeting someone means you might catch a cold. You could shut yourself away at home and the bus gooes through your wall with a load of passengers with colds, so you get hit by both. It’s supposed to be all about probability and life is one big gamble to some extent.
    Investing in Life settlement plans means that ones profit depends on the model being used WORKING and resulting in deaths at the predicted rate or above. The model shoudl allow some leeway for error and it should NOT result in complete catastrohic loss due to premiums on the life plans not being paid becuase the firm has not held back the cash it said it needed to in order to meet the regular premiums required. Gambling on someone doing what they said they would is not gambling as there shoudl be a civil liability against the parties who faield to do what they said they would. That does not mean that some loss was not possible.
    So focus on the FOS use of the word gambling should not be the issue, otherwise, governments immoral pushing of lottery tickets, where the largest proportion of receipts comes from those who can least afford to loose 100% of their stake is ridiculous. Premium Bonds do not risk the stake, but they do risk loss of income and of value by inflationary effects.
    Using a modest proportion of a clients portfolio for what the FOS now describe as “gambling” via Keydata, is no different to anuthing which requires growth in an index (i.e. many ETFs) , the stockmraket itself and so on, so lets put aside the comment of “gambling”. For many clients, Life settlements would be inappropriate on ethical grounds.

  3. As a ‘client’ that has lost ALL my pension fund because an IFA suggested it was a safe pension scheme, and just right for me, I can see where the FOS is coming from. Yes, life is a gamble, and it is true, just putting our savings into a bank, or building society could result in total loss due to the bank etc going bust. But in those cases there would be no argument over compensation – it would be automatic.
    In hindsight no pensioner should have been introduced to Keydata, unless he/she had money to lose.
    IFA’s, that suggested Keydata to pensioners, please own up to the fact that you all over-exposed clients to a high risk investment, whilst claiming it was safe,

  4. It somewhat concerns me that FOS would use the term “gambling”. The expected return on a bonefide investment is positive, whereas the expected return on any bet is negative.

    Is FOS really saying that the expected outcome on this investment as a whole was negative or has someone demonstrated they lack the requisite knowledge to make a judgement.

    If this product really was a “gamble” in the real sense of the financial outcomes surely this raises much wider questions concerning the marketing of these products and the regulation of the firm concerned.

  5. Tony Tobin _ I typed a longer response, but it got lost in the ether. 100% in to anything lacks common sense and an adviser who suggests that leaves themselves open to complaints and probably uphedl complaints.
    I do not know the full circumstances of your case although I believe I read some of it in the papers and I suspect were I in your shoes I woudl complain to the firm who advised me in order to give them an opportunity to explain their logic again or accept that their common sense radar had been left OFF and asked you to turn yours off too.

  6. Surely the point is what did the client say they wanted. If they said they definitely wanted a high risk high return investment for 30% of their portfolio fine. If they said they wanted a low risk secure investment like a bank or building society 5 yr bond & the IFA said Keydata is your man, it is a very different story. The “gambling ” idea comes from a judge in the New York state Kramer case Lifemark is currently fighting.

  7. Having a complaint adjudicated on by the FOS is akin to gambling.

  8. Tonyw- It was not marketed by Keydata as high risk and any consumer who read the brochures would have been under the impression it was low risk. As part of a portfolio where the world at the time was going a little crazy including the banking sector collapsing, your argument would not stack up either as more than £32,500 in anyone bank at the time would have exceeded the FSCS deposit limit.
    How much should an individual slice and dice their savings and investments so as to get maximum FSCS protection and should people rely on FSCS protection at all?
    I am not condoning (nor condeming) the 30% invested in Keydata. It does look an excessive sum, but without seeing the full details of the case, then you are just promoting trial by media. Even the FOS will gather SOME information together before deciding if they think the adviser was at fault.
    These were NOT no risk investments (there is no such thing as no risk deposist even as NS&I are backed by UK Govt, which could default) and any adviser who implied they were is going to end up with an upheld claim, but low risk, medium risk and high risk needs to be looked at in the context of the relative size of the holding to the clients total portfolio and not in isolation. The return on the Keydata plans at the time was not massively higher than long term deposit rates and some cash ISAs as Keydata SIPs I think were paying 7.5% to 8% and deposit rates could be obtained for about 6% at the time I think. :ast year Newcastle Building Society were still paying 5% for 5 years fixed cash ISAs with 3 months notice and NO loss of interest on earlier access, so an extra 2.5% income for risking capital at maturity is a fair trade off where stable income is more important to a client.
    The “Gambling” quote in this article also came from the FOS who should not have used it. The probability is I will not crash my car on the way to a clients this morning, but that does not mean I am gambling that will not occur on the way to my clients. The National lottery is true gambling, you risk loss of your whole stake, Premium Bonds, you do not risk loss of capital, but of any return above capital. Many of the Keydata bonds were “Secure or Fixed Income Bonds” and were supposed to hold cash to meet the income with probable full return of capital (with a risk) based on what they stated were stress tested and actuarial assessed outcomes. Catastrophic failure by non payment of premiums implies Keydata did not maintain the cash they committed to in the brochures and the catastrophic loss was preventable and it is for this reason that most Keydata investors will claim against the FSCS as Keydata did NOT do what they said they would in the brochure, i.e. review cash holdings 6 monthly and make sure they had enough so plans did not lapse and so that income could be paid without interruption.

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