A few years ago, around mid-2007, I received a call on my mobile from a PR person. Did I know anything about a company called Keydata?
I was forced to confess that I didn’t. I had a vague idea that the firm was involved in the marketing and selling of structured products but these had never been an area of great interest to me so I had sort of let the business pass me by.
The PR person offered me the opportunity to meet with directors at Keydata, whom I was told were very eager to catch up with me. I demurred, this was not the best time, as I had just started a full-time job in North Wales and I was not doing much writing back then, so it would be a big waste of those senior executives’ time, not to mention mine.
What? Didn’t I know that Keydata had won a whole series of awards for its structured products? How could I not want to come down to London and meet them? Did I not realise I was missing a massive opportunity to find out (and presumably write about) the company? I am afraid that the PR person and I parted on bad terms.
I will come back to these blessed awards in a minute, but it is important to realise that Keydata was not prominent on the radar screens of a lot of journalists at the time.
Last summer, as I had a pint with a fellow writer, he told me of his shock at discovering – after the company had collapsed – that it had almost £3bn invested in its various products, a massive chunk of it through the many building societies that it dealt with, either as a provider or an administrator. They included Cheshire, Derbyshire and Dunfermline (now all under the Nationwide umbrella), Leeds Building Society and Royal Bank of Scotland.
What I certainly do not remember being told, as I endured a lengthy accusatory monologue from Keydata’s PR, is that the company was in any sense a financial adviser or intermediary, certainly not in the commonly understood term of that category.
Which is why, when I read last December that Aifa was taking legal advice to see whether it might be able to mount a challenge to the potential Financial Services Compensation Scheme levy on the “investment intermediation category” related to Keydata’s collapse, I naively thought it would not take the FSCS and the FSA between them a nano-second to see that it was nonsensical to make IFAs pay for this firm’s collapse.
How wrong I was. Last week, it was announced that, in addition to Continental and Square Mile, which will cost IFAs a whopping £27m, Keydata’s contribution to the bill that IFAs face having to pay would be a whopping £43m.
As one or two of you may have realised, I am not generally renowned for being a great fan of the IFA industry. However, this levy is an outrage. It offends every sense of natural justice, for a number of reasons.
First, because the more you study what Keydata was up to in the years before it went belly up, the more it becomes apparent it was not being effectively regulated by the FSA, certainly in terms of the category it was regulated under. To not spot that there was something wrong with Keydata in the year or two before it was forced into administration is pathetic.
Even so, it has to be said that no one else comes out of this with any great credit, not even IFAs. After all, it was often IFAs who were selling these structured products to their unsuspecting clients.
A quick trawl through the MoneySavingExpert website forums last week revealed this little gem from one consumer back in mid-2006: “An IFA told me today about a 7.5 per cent Isa with Keydata for five years, and 7.7 per cent for seven years. I’d never heard of it, but was told it is only something accessible to IFAs.”
Moreover, the awards to Keydata I mentioned earlier, which the company proudly boasted of on its website, did not materialise out of nowhere. They were from another trade publication and, as I understand it, are voted on by IFAs.
The company was able to market itself to a significant extent to the public because IFAs were recommending its products to their own clients.
There is no question in my mind that this is an FSCS levy that IFAs should refuse to pay en masse.
The only way that the FSCS will understand that pretending Keydata is in a certain category for the purpose of deciding who pays the bills is not on. Aifa, which supposedly took legal advice in December – and has not said anything else on the subject – must lead on this issue.
But it is equally the case that Keydata’s star would not have burned so brightly had it not been for many financial advisers themselves. In that sense at least, all IFAs are paying for the actions of a minority – as always.
Nic Cicutti can be contacted at firstname.lastname@example.org