One of the intriguing aspects of offering a “consumer” perspective on financial services issues, as I try to do in Money Marketing, is the assumption that there is a single view on all issues.
When, for example, I tried in my most recent column to offer an analogy to the Titanic as a metaphor of IFAs coming into contact with the RDR, I was told I should be more like Jeff Prestridge and Martin Lewis, who have a different outlook on the matter.
There is a bizarre irony in the way some of the most individualistic groups of people – financial advisers – are now telling another highly idiosyncratic assemblage – journalists – that we must all sing from the same hymn sheet.
The problem with that approach is while consumer finance journalists are broadly in agreement on many issues, we do not necessarily see everything in exactly the same way. That, after all, is what democracy is all about.
The same applies to IFAs and the way they respond to clients’ needs. When constructing portfolios, for example, they will each assess those needs differently. When discussing their risk profile, they may well define it in a manner dissimilar to some of their peers.
And when constructing a portfolio, their assumption of what constitutes a “low”, “medium” and “high-risk” investment strategy is likely to involve disagreement within the adviser community.
Where we all agree as journalists – and as IFAs, often enough – is on some of the key issues that affect those we write for and you advise.
Take Arch cru, for example. Here is an assemblage of firms – Arch Financial Products, Cru Investment Management and Capita Financial Managers, among others – who marketed, took investment positions and oversaw the management of a range of funds they described as “low risk” to investors they were targeting.
We are also in agreement these products were nowhere near the definition of “low risk” that were claimed for them at the time by Cru Investment Management chairman Jon Maguire and former Arch FP chief investment officer Michael Derks in that astonishing video they made in 2008.
As a result, upwards of 20,000 savers, the vast majority of whom wanted low- risk investments were persuaded to put their money into a range of investments that included unquoted companies, private finance initiatives and even Greek shipping lines.
Where we additionally have a common viewpoint is in the responsibility that seems to have been avoided by both the FSA and Capita as the regulator and overseer of the funds respectively. That is the only way one can interpret its letter to the law firm Regulatory Legal in October last year as to who was ultimately responsible for the debacle at Arch cru.
The letter, signed by FSA solicitor Jon Gerty, suggests no one may be to blame for investors’ losses and they should not therefore expect full compensation: “It is also the case that others (or even no one) may be responsible for the losses suffered by investors, so 100 per cent [compensation] is not appropriate in this case.”
Gerty’s letter implies Capita does not bear legal responsibility for Arch cru investor losses: “I can confirm the FSA has made no determination that CFM is legally responsible for any investor losses.” It adds that the regulator will not be taking legal action against depositories of the Arch cru funds, BNY Mellon Trusts and Depositories or HSBC.
Again, there does not appear to be any indication on the FSA’s part that it is willing to accept any blame for what happened.
Was the regulator really unaware that hundreds of gullible IFAs were using the IMA sector classification, based on an assessment of underlying assets, to describe the funds as “cautious”? Did it really have to wait for two years after the funds were suspended to publish a report which has now found – to no one’s great surprise – that only 12 per cent of sales were appropriate?
Oversight? What’s that?
Ultimately, where some consumer journalists are in agreement is that the FSA was asleep on its watch – and that asking Capita to pay its share of the £54m compensation package agreed last year is astonishingly little.
That said, although I have not spoken to many journalists on this issue, where one or two disagree is over the issue of whether IFAs who sold Arch cru funds should be told to review all their sales, with a view to making up to £110m available in compensation to affected investors.
My own take on it is that it was the correct decision – it targets those explicitly responsible for the poor advice and ensures they bear the heaviest part of the cost of redress.
But the scandal that remains unaddressed is that of reforming the FSCS so the main part of the bill does not fall on all other IFAs when those who missold the Arch cru products go under and are declared in default.
I suspect that both myself and most other journalists would agree on that, and not a few financial advisers too.
Nic Cicutti can be contacted at firstname.lastname@example.org