Politicians are accused of fuelling the boom or ignoring its excesses. Short sellers have got short shrift. They are part of the problem but we do not know how much they were the cause and how much they were simply exploiting fundamental weaknesses.
The investment bankers who created and traded toxic products they did not understand are undoubtedly the biggest villains. Those contracts should never have seen the light of day. But how on earth does one seek redress from former bonus boys and girls and their bosses when it is probably not fraud but base stupidity, greed and arrogance. The fear must be, reputations aside, that they get off scot-free.
In the adviser market so far, we have seen a failure of products based on derivative structures provided by Lehmans. We have also seen a great deal of stress placed on an AIG enhanced fund, hit by the threat of withdrawals prior to the bailout of the group overall.
In terms of the risk of structured products, some clients will argue they did not have counterparty risk explained. Investors in the AIG fund will suggest they did not understand product or the risk of restrictions. In all these cases, IFAs will face client complaints. We believe that many of these complaints will be unfair but that the unique circumstances of how retail financial services is regulated in this country combined with the compensation culture that has been allowed to grow up in the last 10 years will spell bad news.
Of course we do not yet know how much damage has been done. It would be great news if many of these investment products were rescued or indeed saw performance lifted. But we fear that the FSA, ombudsman and consumer groups will come looking for those to blame.
It will test the mettle of Aifa and the AMI’s stakes-in-the-ground initiative. But we fear IFAs may face trouble for things that have happened to products as a result of events completely beyond anyone’s control and that is just not fair.