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Investors facing losses due to Ucis PI exemptions

20Twenty Independent lost a £2.6m FOS claim earlier this year.

Investors are facing heavy losses following an adviser firm liquidation due to its professional indemnity insurance exemptions for unregulated collective investment schemes.

20Twenty Independent went into liquidation on October 25 after losing a £2.6m Financial Ombudsman Service case over film partnerships in March.

FCA rules do not require advisers to inform clients of PI exclusions but the regulator has previously raised concerns and is investigating better disclosure rules. 

In March the FOS criticised 20Twenty for giving unsuitable advice on £2.6m invested in Crossover Film Partnerships.

On claims brought before 1 January 2012, the FOS’ maximum award limit is £100,000 per person, and £150,000 for claims brought after this date.

Nine more clients are claiming a total of £2.5m after advice to invest Crossover and another film partnership scheme Icebreaker.

20Twenty is yet to be declared in default by the Financial Services Compensation Scheme, which pays out a maximum of £50,000 on investment claims.

Claimants are seeking payouts from 20Twenty’s PI policy but a creditors report, seen by Money Marketing, suggests exemptions for Ucis and film partnership schemes apply after the policy was changed in October 2012.

Claims firm Rebus Investment Solutions, which is representing the clients, says the “alarm bells are ringing” for investors.

Rebus head of client relations Martin Taylor says: “It is not fair on the good IFAs either as they are left holding the baby with FSCS levies. Where this leaves our clients is questionable and other clients are starting to come out of the woodwork.”

Insovency administrator CMV Partners said it has received no proven claims.

Hudson Green & Associates principal Ian Hudson says: “If an adviser does not have PI cover for the area they are advising on then they should not be advising on it.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Forget the “Independent/Restricted” argument, we will all soon be governed on what we can advise on by the inclusions and exclusions of our very expensive PI policies !!!

    Was it not Sants who said while at the FSA; our RDR, arrow visits, skilled persons reports, thematic reviews into miss selling scandals will not make you PI premiums higher it should lower them !

    Well I had a skilled persons report ordered back in 2010 and my PI premiums have increased 3 fold !!! and that is even after the all clear and everything was deemed suitable in the first place !

    I suppose that’s the price of having low qualified, bullies from the regulator come and audit you ! sure like every-one there were things that could have been better, and things to be changed but they were very minor. (but no unsuitable advice)
    Regulation not because they should, but because they can ?

    Sorry back to the point of the story !! Should we be preparing for investors wanting to see or have a copy of our PI policies before any advice to check for inclusions and exclusions ?

  2. I think the comment attributed to Ian Hudson overlooks the simple point that an adviser might have cover for a product at the time they give the advice but PI is based on the time the claim is received, not the time of the event giving rise to that claim.

    So the fact that an adviser has cover when he makes a recommendation is no guarantee that it will be there will be any present if an investor later finds they need to complain.

    As policies are renewable annually, an insurer is able to offload any liability it foresees coming down the track as soon as the current policy expires. That is what happened with Keydate, Arch cru and many others.

    Contrast that to the asbestos claims where the employer’s liabiity insurer had to face claims many years later, after the original employer had gone bust.

    Of course the premiums might be higher but the burden on the FSCS would be massively reduced.

  3. So is this likely to mean yet more additional FSCS levies?

    That aside, even if advice on UCI Schemes was covered by the PII policy at the time the advice was given, but coverage was withdrawn at a later renewal date, the very fact that such investments aren’t regulated should have raised a large red warning flag.

    It always used to be a requirement that advice on any unregulated investments had to include an unequivocal warning that they wouldn’t be covered by the FSCS in the event of failure, yet no one has yet explained when and at whose behest such failures did become covered by the FSCS.

    It also seems very odd that FCA rules do not require advisers to inform clients of PI exclusions.

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