Figures from the Financial Services Compensation Scheme, compiled for Money Marketing, show the 10 firms that have generated the biggest compensation payouts within the investment intermediation sub-class.
Keydata represents the biggest compensation bill by far, with compensation of £300m paid to date.
Only three firms out of the top 10 – David Aaron Partnership, RJ Temple and Fisher Prew-Smith, were IFAs. The rest were structured product providers, stockbroking firms, or penny share dealers.
1. Keydata Investment Services: £300m
Keydata designed structured products and distributed them directly to investors and through IFAs. Money invested was used to buy bonds in Luxemburg-based life settlement vehicles SLS Capital and Lifemark.
Keydata went into administration in June 2009 and was declared in default by the Financial Services Compensation Scheme in November 2009.
The FSCS imposed an interim levy of £80m on the investment intermediation sub-class in March 2010, £58m of which related to Keydata, Pacific Continental and Square Mile.
An interim industry levy of £326m was announced in January 2011, around £247m of which related to Keydata Lifemark products. Advisers paid £93m. Costs relating to Keydata were also factored into the annual £33m investment intermediary levy announced earlier this month.
2. Pacific Continental Securities (UK): £49m
Stockbroking firm Pacific Continental went into administration in June 2007 and was declared in default by the FSCS in January 2009.
Former chief executive Steven Griggs and former finance director Charles Weston were banned and fined £80,000 and £95,000 respectively in January 2009 for failures which led to customers buying high-risk shares without suitable advice.
Investment advisers paid an interim levy of £38m in March 2009 relating to Pacific Continental and Square Mile Securities. Advisers paid a further interim levy of £80m in 2010, £58m of which included costs relating to Pacific Continental.
3. Wills & Co: £34m
In October 2007, the FSA fined Wills & Co £49,000 for giving poor risk warnings and misleading information to its high-risk penny share customers.
The FSA censured the stockbroking firm in February 2010 for poor sales practices and not monitoring its advisers properly and stopped the firm from giving investment advice.
The FSCS declared Wills & Co in default in July 2010. Compensation costs relating to Wills & Co were factored into the £326m industry int erim levy last year, and were also included in the £33m investment intermediary annual levy announced earlier this month.
4. Square Mile Securities: £26m
The FSA fined stockbroking firm Square Mile £250,000 in January 2008 for persistently using high-pressure sales tactics to sell shares to customers.
The FSCS declared Square Mile Securities in default in February 2009, one month after it declared Pacific Con tinental in default.
Investment advisers paid an interim levy of £38m in 2009 for costs relating to Pacific Continental and Square Mile. Costs relating to Square Mile also spilled over into the £80m interim levy in 2010.
5. Defined Returns Limited: £17m
Structured product providers DRL and NDF Administration dealt with around 35,000 UK investors, with around 10 per cent of customers invested in Lehman Brothers-backed structured products.
In October 2009, both firms went into administration, and were declared in default at the same time.
NDFA dealt with products under its own brand and set up DRL to administer plans directly run by Lehman Brothers. Investment advisers were levied £80m in March 2010, £22m of which was to cover losses from NDFA, DRL and another defunct provider Arc Capital and Income.
The FSCS ruled in September 2010 that investors in capital-at-risk products from NDFA and DRL would not be able to claim compensation.
6. David Aaron Partnership: £11m
The FSA banned David M Aaron (Personal Financial Planners), which also traded as the David Aaron Partnership, for widespread misselling of precipice bonds to nearly 8,000 customers in September 2004. It marked the first time that the FSA had banned a firm for misselling.
The FSCS declared David M Aaron (Personal Financial Planners) and the David Aaron Partnership in default in December 2004.
7. NDF Administration: £11m
NDFA dealt with products under its own brand and set up DRL to administer plans directly run by Lehman Brothers. Investment advisers were levied £22m in March 2010 to cover losses from NDFA, DRL and Arc Capital and Income. (see above)
8. RJ Temple: £9m
IFA RJ Temple collapsed in July 2003, owing more than £1.5m to its creditors. At the time, the company was one of the biggest sellers of structured products in the UK and at its peak had a client base of more than 250,000. The firm’s advisers were sold to Lighthouse but its liabilities were passed back to the FSCS. The FSCS declared the firm in default in October 2003.
9. Park Equity: £9m
Park Equity Services was fined £250,000 in June 2007 by regulator Fimbra for using high-pressure sales tactics to encourage investors to buy penny shares. Park Equity Services was also ordered to pay Fimbra’s disciplinary costs of £68,000. Fimbra suspended the investment business of Park Equity Services in July 1997.
10. Fisher Prew-Smith: £8m
Fisher Prew-Smith missold West Bromwich Building Society equity-release plans in the 1980s and early 1990s. West Brom argued the responsibility for the sales lay with Fisher Prew-Smith but was defeated in the High Court in 1998.
In February 2001, West Brom revealed it had paid out nearly £27m in legal bills and compensation following Fisher Prew-Smith’s inappropriate sales but the FSCS was still hit with an £8m bill.