N&P admits 66% SIPP investment in Keydata ‘inappropriate'

Troubled building society Norwich & Peterborough (N&P) has admitted its advisers gave "inappropriate" advice to a customer who invested the bulk of their SIPP in Keydata, in a case lawyers involved say mirrors dozens of other claims.

N&P, which is being circled by rivals as a potential takeover target, faces a multi-million pound claim of poor advice from hundreds of angry Keydata investors.

They allege they were mis-sold or over-exposed to life settlement fund Lifemark, which was marketed by Keydata before its collapse in 2009, following advice from N&P advisers.

N&P have staunchly defended their advice process. But in a letter responding to one investor's complaint seen by IFAonline it admits its 2007 recommendation was wrong for the customer.

The letter says investing £50,000, or around two-thirds of his SIPP, in a single Lifemark-backed Keydata product exposed the investor to "a greater risk" should Keydata fail.

This risk could have been "better accommodated" by investing the £50,000 across a wider range of investment funds, it adds.

Lawyers say the concession by N&P could now set a precedent for other claims against the building society from SIPP investors who believe they were over exposed to Keydata plans.

N&P has made no offer of compensation to the investor, who has now hired law firm Regulatory Legal to get his cash back.

The letter shows the investor initially wanted to buy an annuity, but was instead advised to invest two-thirds of their SIPP into a Keydata growth plan.

They were also advised to transfer their equity ISA into the monthly income option of the Keydata plan.

Regulatory Legal is poised to lodge a 390-strong group of claims with the Financial Ombudsman (FOS) against N&P amounting to about £18m.

However, CEO Matthew Bullock has said the society could suffer losses of around £50m because of its Keydata exposure.

Regulatory Legal's clients claim they have been forced to reject an FSCS' offer to compensate investors who relied mainly on Keydata brochures, as N&P failed to follow FSA rules to provide the documents at the point of sale.

FSCS claims are paid for by levy payers out of a shared pool. However, N&P would be forced to meet the cost of FOS rulings, which offer more generous compensation terms to investors, out of its own pocket.

As a building society N&P is not allowed to tap the stock market to raise fresh capital, but could use the merger route to consolidate its balance sheets and augment reserves.

Coventry Building Society is understood to be the front runner to take over its ailing rival, though this has not been confirmed by N&P.

Keydata was put into administration by the FSA for insolvency as a result of a tax liability on 8 June 2009.

Investors have been unable to access their investments since. Lifemark is facing severe liquidity problems and the threat of insolvency, despite receiving an emergency loan of about £7m in October, including £1.5m from N&P.

An N&P spokesperson says: "The customer has not yet suffered a loss as their investment has not yet matured.

"We are continuing to work with the regulatory community to reach a resolution for all of our Keydata customers and not only those who have made formal complaints, and we hope a final resolution is reached in the early part of 2011."