Clients 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.”