There are some investment collapses of recent years that refuse to go away, Keydata being the obvious one. As we report this week, Arch cru looks set to be another millstone around advisers’ necks. The latest twist in the Arch cru saga relates to the £36m legal challenge being brought by investors against Capita Financial Managers, the authorised corporate director of the Arch cru funds.
Clearly, when funds fall over there is a big bill attached and the natural course of action is to look for someone to blame. Was Arch Financial, the fund manager of the Arch cru range, at fault? Was it the regulator? Was it advisers for not doing appropriate due diligence?
The group litigation examines another question: What was Capita FM’s role in all this? Did it carry out its ACD role effectively?
The case is not due to be heard until 2016 but in a recent case management conference, Capita FM turned the legal challenge on its head. It plans to make advisers jointly responsible for investor redress if Capita is found to have failed in its role.
Along with the outrage this tactic has generated, it throws up some nasty challenges for advisers. Should Capita succeed in making advisers jointly liable for investor losses, will this set a precedent for future fund collapses? By dragging advisers into a case that is meant to be addressing any failings by Capita, will advisers have to defend individual recommendations to invest in Arch cru against negligence claims?
It is worth remembering the Arch cru fund range was worth £391m when it was suspended in March 2009. Since then, there has been a £54m payment scheme agreed between Capita and depositories HSBC and BNY Mellon, plus a separate consumer redress scheme funded by advisers and expected to pay out £31m.
Advisers who have reviewed their Arch cru advice and found it unsuitable have had to pay through the consumer redress scheme, while, as is always the way, advisers who never recommended Arch cru have had to pay through the Financial Services Compensation Scheme.
Even if the action against Capita is successful, total investor redress would stand at £121m, less than a third of what the fund stood at five years ago.
The claims and potential counter claims between investors, Capita and advisers mean Arch cru is shaping up to be a legal battle of Keydata-esque proportions. If advisers are found to be on the hook for Capita failings, it is unclear at this stage to what extent they will have to pay for investor losses.
Natalie Holt is editor of MoneyMarketing. Follow her on Twitter here