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IMA wants FSA probe into advisers who sold Keydata

The Investment Management Association is calling on the FSA to launch an inquiry into advisers who recommended Keydata and Lifemark products.

IMA director of wholesale Guy Sears says because the Financial Services Compensation Scheme has paid compensation directly to investors, some firms that missold Keydata products may have avoided their liability.

In January, the FSCS announced a £326m interim levy, mainly to cover the £247m cost of compensation for Keydata investors. Fund firms paid £233m while advisers paid £93m.

Sears says: “There should be a proper inquiry into what advice distributors gave to establish exactly where the problems arose and where the blame lies. What I find strange in the case of Keydata is that clients have been paid by the FSCS but complaints have not necessarily been raised with the initial adviser.”

AWD Chase de Vere, a Keydata distributor, has upheld at least eight complaints over the way it sold Keydata products.

A spokesman says: “There are lots of questions that are still unanswered about Keydata, including the distribution and regulation of the products and what happened behind the scenes. We need an all-encompassing inquiry covering all these aspects rather than looking at distribution in isolation.”

Philip J Milton & Company managing director Philip Milton says: “I do not believe the average IFA should be lambasted for selling Keydata products. We need to understand what went wrong and the regulator’s role but I would question whether an inquiry is necessary.”

The FSA has written to an undisclosed number of Keydata distributors as part of a wider investigation into how the products were sold.

A judicial review brought by Keydata founder Stewart Ford into the way the FSA investigated the firm will be heard at the High Court in London on July 21.

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Call me old fashioned, but why aren’t the IMA shouting for the FSA’s head on a block when they failed to prevent any of this happening – and they knew about problems well in advance?

  2. The IMA have taken some flack for messing about with the managed sectors and this call for an FSA inquiry may be a welcome distraction but may mean even more expense heaped on over-burdened IFAs.

  3. The IMA’s problem is structured products. With the FTSE 100 still well below its all-time high there are thousands of dissatisfied investors in unit-linked products. If you can get 5.75% pa income from a product that will still return invested cash after 5 years even if the FTSE100 is up to 50% below its start level – then consider given this scenario how many unit linked funds would not actually lose money…

  4. Richard Brydon 8th June 2011 at 1:39 pm

    I advised two clients to invest in the Keydata offering, my advice was mainly on two bases:

    Traded life policy funds are not something new and other funds have been running for years, albeit in the USA or unregulated. The second basis for my advice was contained in the Key Features. Backtested by one of the largest accountancy companies in the world, the document proclaimed, there was also a reference to an international bank being involved.
    Okay, I was duped, I admit it, but if the FSA were previously warned that Keydata was lying through its teeth, why did the FSA allow the company to continue with its lies and dupe more and more of us?

    It’s the FSA that needs the investigation.

    The N&P situation is totally different. They just sold the product to anyone who walked in the door.

  5. On Richard’s last point, this is the source of the problem. Unsuspecting depositers being tempted into the back office. Moneylenders should not be involved in “financial advice”. They should give a customer contact details of three IFAs if they think customers have too much money in deposit accounts.

  6. it would appear to me the IMA &FSA always attack the winkest link ie THE IFA sector itself .Surely the FSA would had to given approval to such a product,surely examined the KF literture ,surely seen the policy as stated earlier had some back testing and could be verified.Another diversion tactic by the crafty civil servants types within the corridors of power ??

  7. Bob Donaldson 8th June 2011 at 4:01 pm

    My understanding is that in the first instance to obtain compensation from the FSCS the client had to complain to the advisor and have his complaint rejected. Then and only then could they go to the FSCS to claim compensation.

    That was the case until recently. Has it changed?

  8. Former member 8th June 2011 at 4:08 pm

    Start with Tenet – Keydats was in their recommended product list for members!

  9. Gareth Fatchett 8th June 2011 at 4:13 pm

    The FSA 2007 letter to 10 firms was the warning the industry never received.

    Now, the problem is that Keydata is deemed to be “high risk” and “complex”. Therefore, any advice which does not say “this is high risk and complex” creates a bolt on redress claim.

    FSA should have publicised this in 2007. Failing to do so, led to this mess.

  10. Product review by Debbie Harrison, SeniorVisiting Fellow of the Pensions Institute at Cass
    Business School and contributor to the FinancialTimes
    The Secure Income Plan offers private investors attractive income and growth prospects via a
    relatively new asset class – the secondary market in US life assurance products – hitherto only
    available to institutional investors.

    About the author
    Debbie Harrison is a SeniorVisiting Fellow at the Pensions Institute, Cass Business School, where she is a researcher and
    the co-author of four landmark pensions reports. Elsewhere 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. She is happy to discuss any issues arising from this research and can be contacted at
    debbie.harrison@virgin.net.

  11. The IMA call for an investigation of IFAs, when their Mr Ferrans thinks Stewart Ford was a “victim of a sting”
    In the wake of scandals After achieving so much Ferrans, 55, has not lost a talent to surprise. When I met him I was intent on quizzing him about the IMA’s response to the multiple scandals that have damaged the reputation of the investment industry in the past year: Arch Cru, Keydata and more recently Stirling Mortimer and Integrity.
    To my delight he started by saying he had read New Model Adviser®’s coverage of Keydata with interest because he knows Stewart Ford from way back when he commuted between Glasgow and London. He described Ford, the founder of Keydata which plunged into administration last year, as an ‘entrepreneur’ whom he believes is a victim of a sting…….

  12. Agreed Gareth. The FSA must have identified that the products were being marketed as low risk to normal retail investors as part of their 2007 review. They should have warned clients and the industry at the time if they felt this was wrong. They didn’t. Either they didn’t think the products were high risk (in which case why is it now all of a sudden that they are), or they seriously messed up. The losers in this are investors, IFAs, the IMA etc. The winners are firms who, despite their criticism of the FSA in this respect, are still prepared to merrily pursue redress for clients and claim their 10% success fee.

  13. As a Keydata Victim, it may be obvious why I do not have too much sympathy for the IFA’s who sold Keydata. The problem doesn’t lie with the practices that recommended or suggested the Keydata product to experienced investors, it is the establishments that sold the product, with or without charging for the ‘advice’, to inexperienced investors, quite often retired people looking to put their hard earned cash into a safe pension scheme. These IFA’s should be hung out to dry in my opinion.

  14. Patrick Schan 9th June 2011 at 9:36 am

    The Key Data key features stated ” A lower risk profile” and “the secure income bond uses an actuarial model developed by KPMG”. Also “You should be reassured that the insurance contracts within the bond are issued by financial institutions with a minimum credit rating of ‘A’ (Source Standard & Poor’s or equivalent).” also mentioned were that contracts issued included those from GE Life and Prudential as well as mentioning that the trading of the insurance contracts is overseen by HSBC and that Mees Pierson were custodians of the bond.
    I think it is easy to see why some IFA’s, including myself, were fooled and recommended the bond in all good faith. Thankfully I only sold one small bond, within an ISA, and I included the risk of losing capital if the company went into liquidation within my reason why letter. The client claimed from the ombudsman stating that she felt deceived by the literature she received from the company. She had no complaints about my service at all. She received compensation within two months.
    Along with many other IFAs (I suspect) I wrongly assumed the FSA had given the all clear for the product. This business scares me to death sometimes!

  15. Although posting anon may be seen as wrong. The system here allows it and as MM takes you email address, it is a great pity that if they decide NOT to post the article that they do not send an email to teh writer asking them to amend their comments so that they are acceptable to MM.
    I had two posting last night which were not put up and they were pertinent and did not attack an individual, they should facts already in the public domainwhich should be questioned.

  16. I think I missed something. I always thought an advisor should base recommendations with some product knowledge rather than quoting the content of a KFD.

  17. Why does the IMA want all advisers investigated, instead of an Independant Inquiry as to what happened and who was at fault when to quote the IMA’s own Mr Ferrans from an article on 17th March 2010, he is reported to have said “described Ford, the founder of Keydata which plunged into administration last year, as an ‘entrepreneur’ whom he believes is a victim of a sting”
    . Does Mr ferrans think it fair to blame all and sundry distributors without first encouraging a complete, Independant and Objective look at what actually went wrong?

  18. It is funny how nothing is being made about those in academia who were putting out positive spin about Life Settlement Plans prior to the FSA’s February 2010 statement that “Life Settlementts” were high risk and should not be marketed as they had been allowed to by the FSA previously and how we are now all being measured by the February statement and not those from other academics.
    Admittedly the report from which the below was extracted was commissioned by Keydata itself, but having checked the credentials of the writer before proceeding to advise clients on Keydata Life Settlement Plans, why is not more being made of this error rather than those who took it as being part of their due diligence?
    Look at who she was consulting to. If we are to distrust her, then we shoudl distrust every single employee at the FSA. Oh yes I forgot, we already DO.
    Product review by Debbie Harrison, SeniorVisiting Fellow of the Pensions Institute at Cass
    Business School and contributor to the FinancialTimes
    The Secure Income Plan offers private investors attractive income and growth prospects via a
    relatively new asset class – the secondary market in US life assurance products – hitherto only
    available to institutional investors.
    About the author
    Debbie Harrison is a SeniorVisiting Fellow at the Pensions Institute, Cass Business School, where she is a researcher and
    the co-author of four landmark pensions reports. Elsewhere 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. She is happy to discuss any issues arising from this research and can be contacted at

  19. To whoever at MM keeps censoring me. Can they amend what I have written rather than not positing it please.
    Am I being censored because she wrote in the FT, or because seh was a consultant to the DWP and HMRC?
    It needs to be asked WHY those who criticise advisers who used the Life Settlement Plans feel they knew better than the author commissioned by Keydata with editorial independance. An extract appears below. As part of my due diligence I ensured I had checked the credentials of the writer and yet the IMA wish to call for ALL advice given on Keydata plans to be looked at, when in fact perhaps it should be what actually happened is looked at BEFORE any witch hunt.

    Extract follows;
    Product review by Debbie Harrison, SeniorVisiting Fellow of the Pensions Institute at Cass
    Business School and contributor to the FinancialTimes The Secure Income Plan offers private investors attractive income and growth prospects via a relatively new asset class – the secondary market in US life assurance products – hitherto only available to institutional investors.
    About the author
    Debbie Harrison is a SeniorVisiting Fellow at the Pensions Institute, Cass Business School, where she is a researcher and
    the co-author of four landmark pensions reports. Elsewhere 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.

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