Arch Cru IFAs told to ask PI insurers to give to Capita scheme

IFAs who recommended Arch Cru - and now may face demands for compensation - are being advised to contact their professional indemnity (PI) insurer to ask them to contribute to the Capita redress scheme, as a cheaper way to deal with claims.

The Financial Services Authority has begun an investigation into firms which recommended CF Arch Cru funds to retail clients on an advised, discretionary or mixed basis between July 2006 to March 2009.

Regulatory Legal, which acts for about 2,700 Arch investors and works with an action group of about 60 IFAs who recommended the fund range, has branded the FSA investigation "pre-determined" to find fault with any advice which did not class the investment as high risk.

The law firm is advising IFAs to approach their PII underwriters and invite them to contribute money to the £54m payment scheme set up largely by Capita, authorised corporate director of the fund, with contributions from trustees HSBC and BNY Mellon.

Investors have condemned the scheme, which they argue will return less than 50% of the value of their investment on the date the fund range was suspended in March 2009.

IFAs fear investors will turn on them to get the rest of their money back via a complaint at the Financial Ombudsman Service.

The FOS has made public one provisional decision involving an Arch Cru investment where the service found against the IFA.

"Only the most naive would not see the FSA process as being pre-determined. The outcome of the review will follow the provisional decision issued by FOS, unless some form of miracle occurs," Gareth Fatchett, partner at Regulatory Legal, said.

"Firms need to co-ordinate themselves. There are a limited number of underwriters in this matter. This approach benefits firms and their investors. If matters drift, the FSA will be able to allowed to mask the failures of Capita, with the statistically supported suggestion that the product was unsuitably sold."

The FSA has written to firms within the scope of its investigation into Arch Cru asking them to provide individual client files. They are also likely to have to provide information on the due dilligence they did on the funds.