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FSA sets client ‘opt-in’ for amended Arch cru redress scheme

FSA Letters 480

The FSA has amended plans to implement its Arch cru consumer redress scheme for consumers to opt in to the scheme to assess whether advice was suitable.

The regulator estimates that between 15 and 30 per cent of clients who were advised to invest in Arch cru will opt in to the scheme, reducing the redress paid out by the scheme from the proposed £110m to between £20 and £40m.

Firms who advised on investments in the CF Arch cru investment and diversified Funds must contact all their clients asking if they want their case reviewed to determine whether they were missold the funds and may be eligible for redress.

The FSA says if clients who invested in Arch cru opt for a case review and receive redress, it will put them back into the position they would have been in had they received suitable advice. This is the first time that the FSA has used its powers to implement a consumer redress scheme of this type.

The regulator received over 230 responses to its April consultation proposing the redress scheme, with most submissions opposing the plans. The FSA says it has “received no new evidence” that a redress scheme would be inappropriate, but says it has amended its plans over concerns the scheme could lead to higher Financial Services Compensation Scheme levies and increased professional indemnity insurance costs.

The consumer redress scheme will start on 1 April, 2013, and firms will have until 29 April, 2013 to identify and write to all clients that fall within the scheme and outside the scheme’s scope. The letter will either explain to the consumer that if they decide to opt in the firm will review the advice given, or it will explain that their case falls outside the scope of the scheme. Consumers that do not respond will receive up to two reminder letters following this first letter, and will have until 22 July, 2013 to opt in.

Firms will have until 9 December next year to advise clients who opt in the outcome of the review.

The amount of redress will be calculated based on what would have been a suitable investment for the individual investor, the current value of the funds, and less any amount an investor is eligible to claim from the separate £54m payment scheme agreed with Capita Financial Managers, BNY Mellon and HSBC in June 2011. Investors have until 31 December next year to apply for the payment scheme.

FSA director of supervision Clive Adamson says: “Advisers have to accept and understand that ultimately they are responsible for making sure their customers’ interests are protected. If they do not understand a product or have not done the due diligence on it, they are in no position to recommend it to their customers.

“It is important when mis-selling occurs that consumers can be redressed. The vast majority of advisers maintain very high standards and misselling by a few only further erodes trust in the market which harms the whole sector.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Still the FSA will not tackle the real problem. The funds were mismanaged and promoted as low risk.
    This is not an adviser issue it is a provider issue. All clients should receive compensation from the providers. Do you want some redress? Ummm no thanks I will just suffer the loss. Doh

  2. I’m sure the devil’s in the detail, but why on earth won’t everyone opt in to have their advice reviewed? Are they perhaps excluding themselves from alternative potential opportunities?

  3. This is a nice political wheeze – I bet the compo actually will be higher than the new more politically acceptable amount being guessed at by the FSA but this turns the heat down from a PR perspective and with the the known now ‘handily’ higher amounts paid from Capita etc.

    Wording of the letter will be interesting.

  4. We didn’t recommend this fund, we recommended a Multi Manager Fund that was ‘acquired’ by Arch Cru. Arch Cru fundamentally changed the fund investment strategy but issued a letter telling the client they were making some changes. They didn’t do their job properly so we have to review our client and give them back what they have lost?

    They just don’t get it do they?

    Of course when we got the letter we could have done a load of due diligence for our one client to look into the Arch Cru Fund strategy and recommended they switch out of the fund so I guess it is our fault after all.

  5. @Thomas : I think you may find (para 2.4 and the proposed rule 2.1.1R(2) ) that your situation isn’t covered by this scheme … failure to provide advice to disinvest is not covered.

  6. What happens when firms no longer exist then?
    We had an adviser leave us and poach clients. He then recommended UCIS & Arch Cru to ordinary people with £30k to invest.
    When he (inevitably) went bust, some of the clients came back to us and are stuck with Arch Cru holdings. How do they get redress from him or anyone else under this scheme?

  7. well its here so there is little point arguing about it although it still beggars my belief that advisers are missing the key point here, that being you only have to pay redress where your advice was unsuitable, the way many people go on on these blogs you would think your being asked to cough up for every sale you ever made without any regard to the advice.

    But then I’m guessing that could be the real sticking point here, the quality of the advice.

    After all if your confident in your advisers and your compliance processes there shouldnt be a problem….or should there?

    I read these blogs and as a humble member of the public there often seems to be a common theme with these blogs ‘it wasn’t me guv, it was them’.

    You gave the advice so it makes sense your held to account, or is that too simplistic?

  8. @nickobodinus
    We have no arch cru exposure so I can be a little dispassionate. Couple of issues

    1) many advisers supported a multi manager fund which was subsequently acquired by and then changed by arch cru. Why should an adviser be liable for the misconduct of a fund manager. Advisers recommended multi manager arch cru changed it – not the advisers.

    Let’s assume advisers charged 3% on that investment – how can they possibly be expected to write a cheque for 100% when someone else commits a fraud? You may say that is what PI is for, and to some extent it is. But PI insurers are fed up of being held to ransom by the FSA and next year or the year after there will be no PI available and then no advisers and no one to claim against legitimately – so there has to be balance and this ain’t it.

  9. ditto Simon Webster’s comments.

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