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Year to Year: 1998

More fines, major mergers and the emergence of two notable damp squibs – Catmarks and the Millennium Bug – dominated the year.

In February Standard Life’s investment arm broke away to become the biggest fund manager in Scotland with £600bn under management.

Chartwell investment analyst Ryan Hughes says: “It was a very bold move at the time and other life offices followed it with less success.”

The new investment company would be well-placed to capitalise on the move contained in Chancellor Gordon Brown’s second Budget: a u-turn on the proposed lifetime limit on Isa investments as well as upping the annual allowance to £7,000.

But some IFAs were unimpressed by Isas. Hughes says:
“Peps and Tessas were not broken, so there was no need to fix them. Ultimately, I think they were not as good as Tessas and the change created uncertainty among investors.”

Stealing the headlines in March was the £14.1bn merger of Commercial Union and General Accident, with the beginning of the end of the CU brand in the IF A market.

IFAs accepted that this was just the start of consolidation in the financial services industry, some recognised that guaranteeing financial strength in the future would mean a reduction in the number of insurance companies in the market.

This coincided with an ongoing spell of pension review fines, with Britannic Assurance scoring a record equal to PIA’s penalty of £525,000 in March and sharing the unwanted top spot with London & Manchester. This was later smashed by Sun Life of Canada which was fined £600,000.

In June, advisers sympathies were stretched by the revelation DBS chairman Ken Davy’s personal fortune had taken a beating of nearly £3.5m as the company’s share price dived following a major rise in its pension misselling review provision.

Throughout the year, the industry found itself wrestling with Government plans to introduce Catmarks on financial products, a project overseen by then Treasury head of financial services Paula Diggle.

Many IFAs struggled to muster any enthusiasm over the plans to kite mark products which were later replaced by the Sandler suite of products.

1998 also witnessed Skandia Life jump into the with profits market for the first time, claiming it would revolutionise the market by ditching terminal bonuses and the need for free assets.

In April the spotlight turned onto regulation as the Treasury warned that while it was willing to give voluntary mortgage regulation a fair chance, full statutory regulation would happen if lenders and brokers failed to get their house in order.

Economic Secretary Helen Liddell warned: “I am aware that the CML and its members are making a serious investment in the success of the mortgage code and will allow the code a fair trial.”

But did advisers see full regulation as inevitable? Mortgage-force managing director Rob Clifford says: “Voluntary regulation was highly successful and also appropriate to an industry with a low-level of complaints but I do think statutory regulation was inevitable in the context of the regulation of the rest of the industry. Leaving out individuals’ single largest financial purchase outside of regulation was an anomaly and it was because of this, not because voluntary regulation was a failure, that we were always going to get statutory regulation.”

In October IFA qualifications and the plethora of designator letters came under intense scrutiny by the FSA NPI put itself up for sale, despite repeated pledges to remain mutual. The Serious Fraud Office charged former Morgan Grenfell fund manager Peter Young and three others with conspiracy to defraud. The scandal cost Grenfell parent Deutsche Bank more than £400m in fines and compensation and would later culminate in a series of court appearances by Young dressed as a woman, his fitness for trial was brought into question.

Hughes says: ‘This story was not a positive one, but I remember that it did get people talking about investment.”

October also saw efforts surrounding attempts to work towards one unified voice for IFAs yet again falter, with an alliance between the IFA Association and IFP leaving the LIA, Sofa and the CII out in the cold.

The millennium bug began to rear its potentially disastrous antennae in 1998, with Money Marketing reporting the FSA would clampdown on IFAs failing to prepare for the bug.

In November, Private Label chairman Stephen Knight sold his company to the mortgage arm of US car giant General motors for a reported £18m.

Also in November, Peter Young arrived dressed as a woman for his court case relating to the Morgan Grenfell unit trust scandal. The issue of genetic testing and insurance was in the spotlight as the Government revealed it planned to set up an independent body to police insurers’ use of genetic testing.

In the same month, one of the founding fathers of polarisation St James Place Capital chairman Sir Mark Weinberg called for the resurrection of multi-ties, submitting this to the OFT inquiry into polarisation. The IFA Association warned that the Office of Fair Trading’s inquiry into polarisation multi-ties would be a disastrous route, with the ultimate losers being the consumers, as well as IFAs.

The ABI was at the centre of plans to put together a single IFA trade body following an unprecedented attack on Garry Heath’s IFA Association by Trade and Industry Secretary Patricia Hewitt. The attack was to prove fatal for the IFAA
And finally in 1998 Legal & General managed to escape falling victim of a £5,000 Viagra scam involving a doctored cheque. An ABI spokesman said of the fraudster at the time: ‘This must have been a hardened criminal.”

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