FSCS lawyers: Any competent IFA would know Keydata was high risk

Hmmm

Perhaps these same lawyers would say the same about the FSA and the banking crisis and the many many mistakes they have made. You would need to have done some pretty thorough due diligence to establish the complexity of what Keydata was investing in and it does raise issues as to how far any adviser is expected to know and be held responsible for. Happily I have no clients in these but the fault lies not just with advisers but with the whole system of regulation. If we have to know all the investments a fund manager makes then we may as well not bother recommending anything, although it is fair to say if you do not understand the product then you should not be recommending it to your clients. There does have to be some responsibility on those who manage funds etc. Questions need to be asked of the regulator as to why such complicated products were be allowed to be sold without special qualifications and knowledge. RDR does not solve this either. I still favour Product Regulation which I would hope would have stopped this type of product being sold except via specialist suitably qualified advisors. For me Keydata was a failure by the regulator and the FSCS is just trying to recoup money from where it can but it is the FSA who should really be paying the bulk of this, however they cannot be held responsible for anything under FSMA2000, so the whole system is flawed and sadly does not like changing post RDR as the risk and scales of justice and fairness are tipped far too highly against the advisor.

Posted by: Michael Fallas

PI CHASERS

THE THING IS , HOW COMPETENT ARE THE LAWYERS WHEN JUDGING COMPETENCE? P.I. chasing is such a commendable occupation and the rewards for the lawyers involved so predictable, chasing shadows needs more gall than competence, win or lose. It makes one sick in the stomach. This is not about client loss is it? Fat fees and large pots of someone else's money are an almost irresistible honey trap. I wish I could be less cynical, but, history proves the rule for me and it hasn't failed me yet where lawyers are concerned. Competent advisers? We shall see. WISDOM WITH HINDSIGHT IS ALWAYS SO PERFECT.

Posted by: Terence P.O'Halloran

FSCS Lawyers!

it would be interesting to get the FSCS Lawyers opinion about the FSA's handling of Keydata. Obviously, they have the benefit of hindsight on that one to!! Specifically, would be interesting to know if they though that the FSA should have done more to stop these products going to market (bearing in mind it transpires afterwards that the FSA were investigating Keydata at the time of their release!!). Just a thought!

Posted by: Steve

Incompetent?

Whoaa there, just a cotton picking minute. In Court, Mr.Spaight QC didn't refer to incompetent IFA's at all, and nor did Mr.Flint QC for the FSCS. The argument was about Keydata's role and activities as an authorised firm. For Keydata to ultimately be judged as an intermediary, rather than a structured product provider, is a joke in itself to any competent IFA, never mind a QC. And it was shown to be manifestly involved in the management of these funds too. Immaterial, said the judge perversley. As far as we know the FSCS decided of its' own volition to invite Keydata claims in most cases. Have IFA's yet been given the chance to deal with any FSCS claims laid upon them? Have files been examined for compliance purposes? For lawyers to simply label any IFA who offered a Keydata Plan as incompetent is a generalised and cheap jibe. It seems that as far as the financial services industry is concerned, the english legal system just doesn't apply. And especially not for IFA's- we're easier to crush and it's as simple as that. So lookout you clever guys out there who carry out exhaustive due diligence in everything you offer,this is no time for you to gloat. Whatever your level of perceived competence, they may still find a way to scupper your hopes of a decent retirement yet, when investments go wrong in the future. Incorporating immediately if you haven't for personal protection could be worthwhile (if they don't remove the shelter via the rules relating to incorporated firms), otherwise every IFA runs a significant risk of future diminishment- up to and beyond the grave.

Posted by: Sage

Well said Sage

Well put Sage. I remember years ago a friend of mine who worked for the FSA at the time told me that the FSA could find something wrong with anyones files if they wanted to, and I believed him after all they make the rules, judge, sentence and fine anyone they find does not satisfy their requirements at the time. The question with regard to Keydata for me is; should products like this be readily available to ordinary investors in the first place and that is where I would have hoped the FSA would have protected the consumer before the product was brought to the market? Sadly they did not and for me that is a failure of the FSA, not the product, but as usual we all pay the price as the FSA cannot be help to account for anything.

Posted by: Michael Fallas

Go forth and multiply

For years I have been trying to change August 12th from Grouse shooting to Lawyer shooting day. Not only is hindsight a great thing we seem to have overlooked a few other points: 1. If it was so obvious, where was our esteemed Regulator? Asleep at the wheel again? 2. You may recall that many of the claims were admitted on the basis that the literature was misleading – if so doesn’t that impact on the advice? I would have thought that those providing the advice were justified on basing their decisions on the information provided by the product provider. 3. I wonder how this would work in practice if the lawyers are even partially successful. As I understand it PII is there for when a client complaint is upheld and there is a resulting financial obligation on the advice giving firm. So if there has been no complaint from the client would a PII claim be admitted by the insurers following an attempted grab by the FSCS? Indeed wouldn’t the PII lawyers have a field day arguing with the FSCS lawyers? As ever it appears that we have the prospect of these bloodsuckers gorging on both parties simultaneously. I guess they don’t have their regulator bleating about ethics! 4. Of course I have every sympathy with those advisers astute or lucky enough to have avoided this debacle, but again has it been forgotten that the allegedly culpable have also paid considerable sums to the levy? Indeed isn’t this exactly what the FSCS levy is for? Are we to have a precedent whereby not only do we have a levy when things go wrong, but now it seems that a witch hunt will ensue to penalise some firms twice over. I didn’t recall this sort of thing happening with all the other crises. Endowments, pension transfers etc. What will happen when we start getting complaints on Pension Drawdown? Will we have a levy followed by an attempt to snatch back from ‘negligent’ advisers? There is an easier solution – just ship them off to Guantanamo, or shoot them – it is about equal on the uneven scales of this kind of justice.

Posted by: Harry Katz

Faulty Product

If you buy a product from a distributor and it turns out to be ruled a faulty product in law, then the distributor who returned the product to the manufacturer is not at fault. The manufacturer is liable and must pay redress. In the case of Keydata, the manufacturer, whose literature was found to be very misleading, the FSCS paid the compensation on a case by case basis to individuals who could show they had relied upon the said manufacturers sales and key features material. But hey, what's the law got to do with the financial services industry?? Any lawyers out there with the balls and tenacity to challenge it? Anyone out there with any worthwhile advice to retired IFA's about to be hounded and ruined for life, despite never having had a single client claim in a lifetime of advice?

Posted by: Octagon

@ Harry Katz

Well said that man. 10% agree with you at put bery nicely too ;-) Has anyone got a copy of these letters sebeing sent out to sellers of Keydata Life Settlement Plans by the FSCS lawyers as it stikes me that there could be a legal challende against the wording used itself.

Posted by: Phil Castle

10%??

Fat Finger Phil - Only 10% - what's wrong with the other 90%?

Posted by: Harry Katz

Oh so wise after the event

Readers may recall a recent article based on an FSA audit of a Keydata Sale that during an audit. The conclusion of the FSA auditor was that the product was suitable for a low risk investor. The auditor was also the person appointed to represent the FSA at the Keydata creditors committee. It is therefore safe to assume the auditor had good knowledge of the product. So will we hear of proceedings issued against the FSA as well? The question remains what was in the public domain to question the perception of being a "low risk investment" at the time the advice was given? The product was being widely used and endoresed by numerous industry awards. As an adviser "out in the sticks" without the research budgets of many our due dilligenge is much more limited and the accuracy of information provided by "Authorised and Regulated" firms relied upon. Perhaps labelling US (as an adviser that used the products)as negligent it will be interesting to see what the basis of the allegation is. This firm of solicitors should also be aware that there is a law dealing with defammation.

Posted by: Colin Stratton

Bigger my smell chicker

Sorry Harry, that should have read 100% agree with you as I am sure you realised.

Posted by: Phil Castle

@ Colin

Sounds liek you were thinking along the same lines as me "there is a law dealing with defammation". Anyone actually got a copy of the letter? Colin - Can you point me to a link to both the article & report you refer to?

Posted by: Phil Castle

oh so wise...

Phil Here is the link http://www.ifaonline.co.uk/ifaonline/news/2104549/fsa-approved-unsuitable-keydata-advice

Posted by: Colin Stratton

What about the Fraud then?

Let us not forget that Keydata also failed due to a fraud by Mr Elias or whatever his name was. Presumabley the FSCS lawyers expect IFA's to know a product that will be subject to fraud then? My god we now have to be psychic as well, but not yet seen any exam under RDR for it !!

Posted by: Michael Fallas

Keydata Compliant?

At the time the Keydata schemes were taken out, Rule COB 2.3.3R said: 'A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person.' Given that the literature issued by Keydata claimed support from KPMG and HSBC that both later denied, that seems to give IFA's considerable ammunition in their defence. In addition, the FSCS has also used the argument that the fraud was too remote and Keydata was not therefore liable. But since it was even more remote from the IFA, it follows that FSCS has acknowledged that the IFA cannot be liable. Given that the literature issued by Keydata has been proven as misleading, a Court case could result in a loss for the FSCS. Perhaps FOS would then stop upholding further claims against IFA's. Any decent FSA Regulatory Lawyers out there?

Posted by: Sage

Hindsight!

Colin I think the Keydata sale you refer to was one of yours? From memory this was to a low risk unsophisticated client in March 2009, which the FSA then looked at in April 09 concluding that it was suitable. Are you saying that, from all of their employees, the FSA chose the person who approved your advice as their representative on the creditors committee just a few months later? Staggering. IFAs are being royally stitched up here by a regulator that has messed the Keydata saga up from start to finish.

Posted by: Martin Bryant

Competence

So in the opinion of a very expensive firm of lawyers [what exactly is the procurement process incidentally]any competent adviser would have known, that is it had the foresight, that keydata was high risk. Ok hold that thought for one moment. Keydata was not only authorised and regulated but had been investigated some 2 to 3 years before it failed. One can only assume that the fact that it was not de-authorised means that the regulatory bodies did not find any causes for concern. It should also be safe to assume that the various regulatory bodies communicate with each other. When therefore in this whole sorry saga of regulatory failure is the competence of the various regulator bodies going to be questioned? I have no axe to grind here as I have no involvement but this is a very dangerous outcome.

Posted by: Duncan Carter

Hindsight

"Colin I think the Keydata sale you refer to was one of yours? From memory this was to a low risk unsophisticated client in March 2009, which the FSA then looked at in April 09 concluding that it was suitable. Are you saying that, from all of their employees, the FSA chose the person who approved your advice as their representative on the creditors committee just a few months later" Martin You are correct on both counts. It was my file audited and the Auditor was the very same person the FSA appointed to Credit Committee. If anyone is receiving these spurious bills and needs some defence material please contact me. If anyone has deep pockets and wanted to look into a defammation action I would contribute. PS I have yet to receive a letter from Herbert Smith

Posted by: Colin Stratton

FSCS lawyers

Kafkaesque !

Posted by: Bill Wells

In the Trenches (Again!)

So, unless i am mistaken, the position is that IFA's who receive a letter from the FSCS lawyers alleging negligence or incompetence, will have to defend themselves on a case by case basis using client file evidence. Shades of fighting in the trenches when we had the Pension Review and Endowment claims etc., not a single one of which was validated in my case. Always the mosaic law for us- GUILTY until you can prove yourself innocent. What happens if we disagree with the FSCS lawyers allegation of negligence on a case,- do we refer it to the FOS? I bow to any superior knowledge.

Posted by: Octagon

In the Trenches (Again!)

So, unless i am mistaken, the position is that IFA's who receive a letter from the FSCS lawyers alleging negligence or incompetence, will have to defend themselves on a case by case basis using client file evidence. Shades of fighting in the trenches when we had the Pension Review and Endowment claims etc., not a single one of which was validated in my case. Always the mosaic law for us- GUILTY until you can prove yourself innocent. What happens if we disagree with the FSCS lawyers allegation of negligence on a case,- do we refer it to the FOS? I bow to any superior knowledge.

Posted by: Octagon

Thank you

Colin & Sage for your info. I have had no complaints about my advice on the very few (and small) Keydata Life Settlements I arranged and having NOT received any letters from the FSCS lawyers yet am now very well prepared for any attempt by them to concoct a claim.

Posted by: Nameless

Actuarial assessment

Has anyone read the report by Debbie Harrison's (Senior Visiting Fellow of the Pensions Institute at Cass Business School and contributor to the FT) which analyses the Keydata Life Settlement product? Here are a couple of snippets from it: “In terms of risk, for income investors the Plan is less secure than deposits but would compare favourably with the more aggressive bond funds, which can only achieve target yields by including sub-investment grade bonds in the portfolio mix”. “For growth investors Keydata’s carefully constructed portfolio would seem to be far less volatile than stockmarket investments. Of course, for both groups there is the inherent risk that medical advances, as yet unknown, could prolong the lives of the original policyholders, while a change in US legislation and regulation could also affect the value of the policies. However, the Keydata bonds, weighted towards the traded policies of the 75-year-old+ market, seem to be well immunised against any unforeseen change.” I would be happy to provide a copy of that report to anyone who requests it and my email address is paul@sicavgroup.com or alternatively I understand that Debbie herself is happy to be contacted by email at debbie.harrison@virgin.net

Posted by: Paul Storrie

Yes

@Paul Storrie is the simpel answer. I spoke to Debbie Harrison on the subject a couple of years ago. I am not sure if she is still happy to communicate with all and sundry as she has changed job/ focus completely after the Keydata debacle I believe. It is not US who shoudl be speaking to her to some extent, it is the FSA to find out the due diligence she undertook and information she obtained upon which her report was based. Her CV and contacts make very interesting reading and might explain WHY it appears IFAs are being pursued and it is only IFAs who keep bringing up her report....

Posted by: Phil Castle

For shame.

How could any adviser view this news as a positive thing? If the FSCS get away with this, a precendent is set for systematic bullying of individual advisers by the regulators who seem intent on proving that they are a law unto themselves. Nevermind the fact that blame lies at the feet of Keydata, for all the lies, deceit and fraud they were guilty of, but also the FSA for publicly approving Keydata. And now they go after advisers and accuse them of negligence and incompetence? For shame.

Posted by: John Smith

What the ?!!(=%"~!

Essentially the IFA's are being whacked for poor due diligence on the Lifemark backed product, and are all expected to be life settlement experts to have been able to sell the Keydata product, That is unfair, The IFA’s sold a product which was: (i) Listed in Luxembourg. (ii) Backed by a CSSF regulated SPV. (iii) Issued by an FSA regulated entity (Keydata). (iv) Explained the investment and the associated risks. (v) Was backed by the FSCS compensation scheme. For the level an IFA sits in the food chain, that is enough for them, So turn that back on the FSA and leave the IFA’s alone,

Posted by: Gerry Gervitz

FSA's lawyer's letter

Regulatory legal have now sent out a redacted copy of this and it is worth a read whether you have any involvement in Keydata or not. On the one hand, it does read as if the FSA are pursuing a major seller of these products who may have over SOLD these to inappropriate clients and on the other hand a sweeping statement is made that the FSCS and it's lawyer's may have to prove or shut up. I understand AIFA now has a copy of this and having rejoined earlier this week, I look forward to their public pronouncement on the letter in due course as it will need comment from a trade body and cannot be ignored. sitting on the fence will not be an option.

Posted by: Phil Castle

Time was...

That everyone is innocent until proved guilty. Clearly whoever dreamt that up wasn't involved in financial services! We have Sage to thank for reminding us of the relevant COB rules that declare reliance on written materials from an authorised and regulated company such as Keydata satisfies COB requirements. My own visit from the FSA confirmed it appropriate to recommend Keydata SLS product to a low risk investor. So therefore let FSCS "Put Up or Shut Up" it is for them to prove we are negligent. Not for us to prove we were not. I still maintain that there is a case to answer by FSCS/their Lawyers under "Defammation" to slur so many decent advisers with their arrogant sweeping statements based on what? The most disconcerting part is the vacuum by industry representatives taking up the cudgels to defend the much maligned Adviser. It may be Keydata today but what and who will be next? The benefit of hindsight is becoming oh so overwhelming.

Posted by: Colin Stratton

For Blue IFAs

http://www.youtube.com/watch?v=Vy5_q58phTY

Posted by: Ken Durkin

Debbie Harrison Report

If anyone wants a copy of this report, please email me on ned.naylor@ljfp.co.uk

Posted by: Ned naylor