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Charges hiked after structured product provider collapses

Miniature man and woman sitting on a bench beside the coins and banknotesClients have paid fees 40 times higher than initial estimates after a structured product provider collapsed, with the Financial Services Compensation Scheme set to pick up the bill.

Merchant Capital, the structured products arm of Merchant House Group, went into administration in January 2013. Reyker Securities subsequently became custodian and administrator for clients who had invested a total of £400m in Merchant Capital’s structured product plans.

A letter dated 25 April 2013 from Reyker to investors said: “We intend a maximum cost of £500 for any capital plan and £600 for any income plan, irrespective of the holding period and portfolio size… Long-term investors with large investments should not have to pay more than £500/£600 deducted per plan.”

However, a recent letter seen by Money Marketing shows one client has been asked to pay nearly £23,000 in fees, including £8,000 in custody charges and £8,300 in legal and compliance charges.

The bill is listed under a receipt “for Reyker’s charges for services already provided and costs already incurred.”

It adds: “All charges are deducted in arrears from your structured product plan gross proceeds as soon as your plan converts to cash”.

The client invested £100,000 into a structured product with Merchant in 2011 with a duration of six years, offering a 6 per cent annual return irrespective of the movement of any stock index.

The bill is dated 24 November 2017 and includes correspondence from Reyker to the client’s Sipp trustees, Guernsey-based Newhaven Trust Company.

It says: “Following the collapse of Merchant as plan manager, additional costs have had to be incurred and charged by us in order to be able to continue to verify and make capital and income distributions without disruption to consumers.”

In December 2015, the FSCS said it was accepting claims against Merchant Capital over charges deducted from maturity proceeds of certain structured investments by Reyker.

A Reyker spokeswoman says: “We are managing the claims process for our client, which is the Sipp in this case. This is fully at our own expense so we can do it more quickly and easily for the client.

“Therefore there will be no loss to the clients as the FSCS is compensating clients. Also the original estimates were made many years ago.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Christopher Lean 12th April 2018 at 11:27 am

    “Therefore there will be no loss to the clients as the FSCS is compensating clients.”

    No loss to the clients, just those firms that have to pick up the tab for the FSCS- Again.

  2. lets charge a fortune because the fscs will pick up the tab. when will these people relise fca/fscs that it is our clients that pick up the tabs

  3. Knowledgeable Adviser 12th April 2018 at 12:12 pm

    Reyker was pretty much given a get out of jail card (no regulatory risk and blessing of its business plan for this) by FCA and FOS, ie to profit from investors, who are then compensated by FSCS, paid for by the industry / advisers. The charges are impossible to justify. The most expensive part of administration is the initial ‘take-on’, which most administrators estimate to be 35-50% of the total costs of admin ad custody for the entire life of a product. All of these investors were already ‘taken on’ and invested – so the processing of applications, ML, etc. didn’t have to be undertaken by Reyker. Yet they have charges fees that are a MULTIPLE of normal charges, for doing 1/2-2/3 of the job. Nice work if you can get it – and with that get out of jail free card!!

    • Completely agree. I made a complaint to the FCA at the time Reyker took over and pointed out the totally unjustified level of charges being imposed. As you state the FCA gave them a free run and has effectively sanctioned this rip off. Needless to say my complaint was brushed off.

  4. The FSCS is designed to protect clients from the failure of a regulated investment firm, so why the complaints? It’s a well known fact that businesses can fail. The FSCS should cover more when it comes to structured plans – like failure of counterparty if that counterparty is also regulated by the FCA. Business will increase for IFAs if clients can be confident they are protected against the failure of regulated firms.

  5. FSCS is no different to home or motor insurance policies, the more claims there are the greater the cost to those people paying into the insurance pool.

    Nothing is free, it is about time that the public were made more aware of this, the FCA are happy to spend money on PPI, why not educate the public about consumer protection and how everyone contributes towards the cost?

  6. The protections afforded by the FSCS are limited so to state blithely that no clients will lose out because the FSCS is now involved is misleading.

  7. Anthony Badaloo 12th April 2018 at 4:51 pm

    “Regulated Products” is questionable, with the investors and their advisers picking up the tab for regulators like this http://bit.ly/ciiSCAM

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