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FSCS starts Lifemark claims against IFAs

The Financial Services Compensation Scheme has started legal proceedings against firms who recommended Keydata Lifemark products.

A letter, seen by Money Marketing and sent on behalf of the FSCS by law firm Herbert Smith to 162 adviser firms, states the FSCS’s belief that adviser firms had failed to ensure they had taken reasonable steps to ensure Lifemark products were suitable for investors, had failed to ensure investors understood the risks involved with Lifemark products or had failed to ensure recommendations were clear, fair and not misleading.

The letter says: “Even without having conducted any of his own due diligence, any reasonably competent IFA would or should have known that the Lifemark products were high risk investments or at any rate higher risk than was appropriate for the relevant investors.”

The letter goes on to say that firms who have been sent the letter have breached its contractual and statutory duties through negligence and negligent misstatement. Firms are required to acknowledge receipt of the letter within 21 days and submit responses to the allegations within three months.

An FSCS spokesman says: “The FSCS pursues recoveries whenever practical and cost effective to do so. We believe good claims exist against a large number of IFAs for loss suffered by investors who invested in certain Keydata Investment Services Ltd products.

“As a result, and in order to protect against the possible expiration of the limitation period, we have issued legal proceedings against a number of IFAs who sold the first of the Lifemark-related products. We have served those IFAs with FSCS’s claim form, and requested a stay to allow the FSCS to engage directly with the IFAs in respect of its claim. We cannot comment further at this stage.”

Firms to have been sent the letter from Herbert Smith include AWD Chase de Vere, Sesame, Tenet, Lighthouse, Intrinsic, Origen and Positive Solutions.

In December, the FSCS had accepted 5,200 claims from Keydata SLS investors and paid out £67m. An industry levy of £326m was raised to pay Lifemark claims.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Lindsay Bateman 19th April 2012 at 9:18 am

    Now how about all those toxic so-called “100% principal protected on maturity” structured notes sold by the banks – where investors still seek redress?

  2. If members are chased by their networks for redress they should contact me.

  3. So, does the FSA believe the Keydata Life Settlement Plans were suitable for no one? In which case, perhaps they should have said that in 2007 when they did their Arrow visit. In addition, if it was unsuitable for everyone, then they don’t need to use a law firm to recover, they can simply have a “Keydata review” like the endowment and pension review. Or do they believe they were suitable for some clients? If so who?
    I would still like to know whether the FSA, FSCS or Herbert Smith have ever asked for any information including the detailed Product review by Debbie Harrison, then Senior Visiting Fellow of the Pensions Institute at Cass Business School and she has published a wide range of UK and global retail and institutional finance books and research reports and has been a contributor to the FinancialTimes on pensions,
    investment, alternatives and expatriate issues for 20 years. In addition Debbie is a consultant to major financial institutions and also runs financial training courses for institutions and government departments, including the Department forWork and Pensions, HM Revenue & Customs, and the Office for National Statistics. She is a trustee of the Financial Inclusion Centre, a financial research charity, and she is an adviser to the DWP on pension reform. Keydata commissioned Debbie to write this product review.The firm provided technical assistance but she retained
    editorial control throughout.
    Debbie in her product review said “….Plan is less secure than deposits but would compare favourably with the more aggressive bond funds, which can only achieve target yields by including sub-investment grade bonds in the portfolio mix. For growth investors Keydata’s carefully constructed portfolio would seem to be far less volatile than stockmarket investments…….Clearly, the financial adviser will play an important role in assessing what proportion of the client’s portfolio should be allocated to this new asset class but in the institutional market the rule of thumb is that a 15% weighting is required for genuine diversification.” How does that balance to this comment from Herbert Smith where it says “Even without having conducted any of his own due diligence, any reasonable competent IFA would have known that the Lifemark products were high-risk investments.” I agree any adviser who ploughed the lions share of a clients portfolio in to Keydata may have been asking for trouble, but where it was used as part of a portfolio to achieve diversification?

  4. man on the moon 19th April 2012 at 9:54 am

    Odd one this, in the cold light of day I still think the FSCS have overstepped themselves.

    As usual the only winners are the legal hounds amassing billable hours and project fees.

    Think that Advisors are generally looking for suitable options for clients and sometimes we Advisors may get excited by a concept.

    Hindsight is always perfect to judge others past actions even if unfair and my own rule of thumb is if I do not understand it then I don’t recommend or action it.

  5. Evidently, Herbert Smith will need to use language that supports their case. However, for the FSA to effectively be following suit by making blanket statements regarding the whole of an asset class, is frankly ludicrous.
    It should be obvious to everyone that the risk associated with any life settlement fund will be dependent upon the profile of that fund and the portion of monies therein held in policies and the portion held in cash. Clearly, if a fund has a high cash percentage and a low percentage in policies and those policies all have very elderly lives assured, this will be far lower risk than a fund with little cash which is mainly invested into policies with relatively young lives assured.
    With the Keydata investments there appears to be a considerable discrepancy between the fund profile that was promised and what was actually delivered in practice.

  6. As Paul Storey says, what about any discrepancy between the fund profile that was promised and what was actually delivered in practice?
    Surely before hanging anyone, there should be an invesigation and it is customary to have a trial too.
    At the moment it looks like any IFA who reccomended Keydata is being hung out to dry. That’s 400 firms who did SLS cases and 200 who did Lifemark ones. How many individual advisers actually used them?

  7. Bearing in mind PI excesses on each claim and the fact many PI insurers have excluded Keydata cover at renewal, how many Networks and IFAs are actually now trading insolvently and below their FSA Capital adequacy figure.

    Below is one of the tests for insolvency, the point is the effects of contingent or prospective liabilities.and it was a contingent or prospective tax liability (that was still being debated) that the FSA itself with the help of PWC used to have Keydata deemed insolvent.

    Does the company owe more than you own. This includes where your liabilities exceed your assets. If you feel this is the case with your company then you could be seen as insolvent.

    This test is set out in S123(2) of the Insolvency Act 1986, which states that:

    “A company is also deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities taking into accounts its contingent and prospective liabilities”

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