There seems to be plenty of initiatives by groups, trade bodies and the press concerning Arch Cru, whereas as far as Keydata is concerned there appears to be much less of a movement to express dissatisfaction at the way this particular issue is being handled.
It now seems to be a given that Keydata products were ‘toxic’ and high risk but this is surely based on evidence after the event, not at the time.
It has been stated that those advisers who have been found culpable did not do enough research or understand what it was they were looking at. This of course raises another point. How much research is required? How much due diligence is required? And how deep should that research be? I have heard the regulator say quite categorically, (although as ever not in writing) that we are entitled to rely on the product literature provided it isn’t an opinion.
The opinion must be ours. Anybody reading the literature could quite reasonably come to the conclusion that this was, at the very least, not a particularly high risk (at that time) investment.
If we are not to place any reliance on literature then how does that sit when recommending investment trusts, unit trusts or anything else that has been newly launched?
It is again a pertinent that the FSA actually doesn’t appear to mean what it says about risk. What it seems to mean is that clients shouldn’t lose money. If we are going to be purist about it, if a fund is unsuitable it is unsuitable whether a client makes money or not but of course if a client makes a profit out of an entirely unsuitable fund that is okay. It is only wrong if they lose money on it and that of course is always assuming that everybody is agreed on the term unsuitable.
Pursuing advisers in the way that the FSA and the FSCS have considered appropriate seems to me only to add further grief to the situation.
First of all many IFAs who are caught in this will find it completely impossible to comply with the demands and will therefore presumably go to the wall adding yet more costs to the compensation scheme.
Those who decide to fight on may possibly win or even fight a draw, in which case FSCS legal costs again will rise, which all advisers will pay for.
Obviously there is one point I do wish to avoid and that is trying to defend the indefensible. Looking through some of the lists of advisers involved in Keydata it is evident that some firms were selling this product like sweeties in very large quantities, perhaps without much thought, and who may in that circumstance find it difficult to defend each and every case.
This is a long way from those who only advised a very small percentage of their clients, and in these cases the investment represented less than 5 per cent of the portfolio, or there were other genuine compelling factors.
Harry Katz is principal of Norwest Consultants