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FOS raps 8 adviser firms over ‘unsuitable’ Keydata advice

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The Financial Ombudsman Service has revealed the details of upheld complaints against eight IFAs related to “unsuitable” Keydata advice.

Between 9 and 16 May, the FOS ruled twice against Care Asset Management and once against Lighthouse Advis-ory Services, Chase de Vere, Kilsby Williams & Gould, Dodd Murray and two unnamed IFAs.

In the separate judgments issued in the space of a few days but only published this week, the FOS ruled many of the firms showed a “complete disregard” for clients’ interests.

It found that clients who had invested hundreds of thousands of pounds were given “poor advice” and not made fully aware of the risks associated with Keydata investments.

Around 30,000 investors lost £450m when Keydata collapsed in June 2009. Many have claimed from the Financial Services Compensation Scheme, which has separately sought to recoup money from advisers.

The FOS says it has received about 100 complaints against IFAs for Keydata advice and is about half-way through resolving them.

The FOS decision notices are legally binding judgments if the client accepts. Since April the FOS has been publishing notices under new rules enacted in the Financial Services Act 2012.

Chase de Vere advised a client to transfer their £54,000 PEP into the Keydata secure income bond. The FOS ruled that the advice was “entirely at odds” with the client’s objectives and demonstrated a “complete disregard” for their circumstances and risk profile.

Care Asset Management gave “unsuitable” advice to two clients investing £30,000 and £7,000 into Keydata secure income plans.

Kilsby Williams & Gould advised its client to invest £80,000 in a Keydata income property bond and £40,000 in a secure income plan.

In separate decisions, Lighthouse and Dodd Murray were found to have acted with “complete disregard” for clients’ interests and provided “unsuitable” advice.

Both cases involved clients who were advised to invest “significant” undisclosed sums.

In two more separate cases, unnamed IFAs were told they should have exercised professional judgement over advice suitability.

Yellowtail Financial Planning managing director Dennis Hall says: “There are underlying risks with these complex products and these risks needed to be pointed out to Keydata clients. 

“Now the FOS is publishing decisions, people might start to see they can get 100 per cent of the money rather than just FSCS payouts.”

Chase de Vere and Dodd Murray declined to comment. Care Asset Management, Lighthouse and Kilsby Williams & Gould were unavailable for comment.

FOS decisions: Keydata case studies

Care Asset Management

A now-deceased 83-year-old woman was advised to invest £30,000 into a Keydata secure income plan to pay for her care home. The FOS ruled the advice was “unsuitable” for her risk profile of five out of 10 as the investment contained “numerous and significant risks”. The judgment says the IFA should have foreseen risks in Keydata and the client could not be expected to spot them in sophisticated and complex products. Payments should be made to recover the full amount plus 2.5 per cent interest since Keydata defaulted on 13 November 2009.

Chase de Vere

Clients invested £54,000 in the Keydata secure income bond and took out a separate Isa with the same product. The FOS ruled the investment advice was “entirely at odds” with the client’s risk appetite, which it rates as four out of 10. The ombudsman dismissed claims by the IFA that Keydata was a respected product provider and said it should have exercised its professional judgement. The FOS ruled that the client should be returned to the position she would be in if she had never taken out the product, plus 2.5 per cent interest since Keydata defaulted.

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. The fundamental concern with Keydata is that teh FSA gave the company’s low risk advertising material a clean bill of health only a couple of years before Keydata went bust. Now we are all being told the plans were clearly high risk. Yet again the FS community is being asked to foot the bill for a failed regulator.

  2. Ditto Arch Cru. Material produced by Canada Life said Medium Risk, product research tools said medium risk, FSA gave apparent clean bill of health, yet we should have known it was high risk. I am exasperated, tired and speechless.

  3. @Simon Webster

    Yes, it does seem strange that one of the world’s most invasive and prescriptive regulators licensed Key Data and then asks the intermediary to become a quasi actuary and discover flaws in Key Data that they, the regulator so clearly failed to discover. The same happened with Arch Cru. What I find even stranger is why “right thinking people” are not outraged by such an abuse of regulatory authority!

  4. Irrespective of the wrongs or rights professed by any agency that looked at the product material prior to it being widely sold (do FSA/FCA provide a ‘clean bill of health’?), these were ADVISED sales where a consumer, generally not expert in financial/investment instruments invested in a financial product on ADVICE. It was not bad luck, it was not down to the regulator no matter how much we might like it to be, it is I’m afraid down to whoever provided the advice. The adviser has various duties under FS rules but under common law also has an overriding duty of care. If you are an adviser and you recommended one of these things, accept your advice was, or may have been flawed if you recommended the product without understanding it, or by failing to explain the mechanics of it properly. Time to stop bleating.

  5. Hindsight is such a wonderful thing when you’re a regulator.

    Most scandals have been the result of Government or Regulator action or inaction:

    Pension Transfers – government sponsored adverts encouraging people to transfer out of their occupational pensions.

    Endowments – a true endowment always paid the necessary maturity value but was too expensive so as a result of a government that wanted to increase home ownership low cost and low start endowments were invented.

    Banks, Arch Cru, Key Data etc. the Regulator at the time was asleep on the job and yet blames everyone else.

  6. @Anon 10.36am. There is a huge amount of truth in what you have said. Indeed its paramount to why most of us do what we do. However, as far as Arch Cru is concerned, we are not talking here about a drop in value in a fund that was incorrectly branded as medium risk turing out to be high risk, we are talking about mismanagement and no doubt acts of fraud for which we are being held accountable. Next time you buy a pint of semi skimmed and find out is full fat when you open it, are you going to sue the milkman? The truth is, we as advisers are all at risk. There but for the grace of God o righteous Anon.

  7. Anonymous – How would you suggest an adviser could foresee a misappropriation of funds?

  8. Becoming a headcase IFA 8th August 2013 at 11:27 am

    @anonymous 10:36 am

    Idiotic. If you were an IFA who sold an Aviva product and Aviva went bust would you be responsible? It is the same principal but just on a smaller scale. An IFA cannot audit a large company and he/she should be able to trust the documentation they receive from them, if they are regulated by the FSA/FCA.

    An IFA also cannot predict a £103m robbery of assets from said company.

    Time for you to get yourself half a brain

  9. We pay the FSA/FCA to protect clients and also the industry from fraud and theft. This they failed to do. If they had been awake to the potential difficulties instead of waking up very late to the problem then forcing the Company out of business, do you really suppose that FOS or anyone else would have revisited the suppose “risks” of the product ?? Indeed (though I suppose I should not put thoughts in their head !) what about all the Keydata products which did not fail and which were transferred to other custodians ? Has their risk profile suddenly changed ?? Modern regulation is good at pointing the finger at anyone but themselves for neglect.

  10. Neil F Liversidge 8th August 2013 at 1:31 pm

    Yet more evidence to support my long-running contention that regulation and investor protection should apply to a relatively narrow band of mainstream life pension and investment products. If ZERO protection was afforded the weird stuff, most people wouldn’t buy it and few would be able to sell it. If some want to swim with sharks that’s their business, but we shouldn’t all have to pay for the hospital bills when they get bitten.

  11. Read the adjudications and you will find many of the concerns expressed by IFAs are unwarranted. The advisers in each case failed to exercise proper professional care and there was enough evidence at the point of sale to suggest that these investments were not for your average investor. Yet these were the very people they were sold to. Contradictory information should have been clarified.
    Misappropriation of funds (if this is the case) is totally irrelevant. If advisers had done their job properly then no compensation would have been payable. The FSA had enormous concerns in 2007 about how all investments were being sold – less than half were deemed satisfactory. The profession had still to clean up its act and sometimes I wonder if it still has.

    Advisers should stop blaming themselves and look at their own advice processes first.

  12. In April 09, 2 months before Keydata went down, an FSA Supervisor visited Page & Page IFA. They reviewed advice given to a couple to invest 100% of their pension TFC into Keydata life settlement products, partly through an ISA. The couple had a cautious approach to investment. The FSA concluded that the advice given was suitable given the clients objectives and attitude to risk.

    If that situation were now to go to the FOS then every indication is that FOS would reach a different conclusion.

    Who says there is no hindsight adjudication.

    The FSA are still to account for their own actions (or distinct lack of it) concerning Keydata pre 2009. I suspect they never will.

  13. @ Sam
    As you say, advisers should stop blaming themselves & so should the Fs/ca

  14. Neil F Liversidge | 8 Aug 2013 1:31 pm

    ” Yet more evidence to support my long-running contention that regulation and investor protection should apply to a relatively narrow band of mainstream life pension and investment products. If ZERO protection was afforded the weird stuff, most people wouldn’t buy it and few would be able to sell it. ”

    Neil … apply the same criteria to banking and we might be getting somewhere.

  15. The regulator does not ‘licence’ anything, nor does it give a ‘clean bill of health’. Anyone can develop a financial product, providing you meet the criteria set out by EU legislation, the regulator cant monitor over 4000 investments at any one time. The adviser and only the adviser is responsible for thier advice.

  16. @Matthew
    The regulator did give Keydata a clean bill of health.
    Their is the spelling you are looking for. I before E except after C.

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