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So the rumours have finally come to fruition with NDFA Limited and DRL, both distributors of Lehman backed Structured Products have filed for administration, neither of which were wholly unexpected.
According to Grant Thornton both companies, which were linked by common ownership, made the decision in view of "large potential contingent liabilities". Data from Structured Retail Products shows DRL, a relative newcomer to the structured products scene, which distributed products issued by third parties, sold an estimated £150m of Lehman-issued products, while NDFA's contribution was a more modest £23m. Given that the combined totals represent a mere 1.5% of the c£12bn of Structured Products sold in 2009 so far, it is important to keep this issue in perspective. Admittedly, if you are one of the advisers with clients affected, you are probably not that interested in this type of statistic however I think it's definitely worth bearing in mind. There are of course other firms that may be potentially affected by the reviews being conducted by the Financial Ombudsman Service (FOS) and Financial Services Authority (FSA) however this is still not clear as the regulator will not comment on individual firms.
Following this announcement I have myself fielded a number of calls from advisers who have become nervous yet again with what, on the face of it, appears to be another backward step for the industry. My response to these concerns is very simple, this is not another issue that faces the industry but merely the result of the reviews carried out by the FSA and FOS following the collapse of Lehmans in 2008...over a year ago! The Structured Products industry has gone through a very tough time since then dealing with not only the huge issues of counterparty risk, the banking crisis and in my opinion the misplaced importance by many upon factors such as credit ratings, CDS's and the like, but also falling interest rates and the hugely unpredictable equity market volatility. We have weathered this unprecedented storm and have arrived in a much better place. Admittedly there are now fewer providers and I believe that the numbers will fall further however I also believe that this is not necessarily a bad thing. Proprietary issuance is undoubtedly where I believe the industry is heading towards which, given my own position, is encouraging not to mention just a little comforting!
We should all be mindful of the positives behind the momentum driving the renaissance the industry is currently experiencing and not let ourselves get sucked into the negative press surrounding very specific issues. At the beginning of the year I predicted the market size to top £20bn, an increase of over 100% on 2008, and I still stand by that prediction. Clearly there are now more and more advisers using Structured Products with more of their clients which means as providers, we are obviously getting something right.
Gary Dale is Head of Intermediary Sales at Investec Structured Products. These are his views and not to be taken as representative of Investec.
www.investecstructuredproducts.com
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| Comment | Let’s keep things in perspective |
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Keeping things in perspective
I do accept the point that the FSA has yet to provide a fully detailed report following its review and until that time it is not known the extent to which advisers are to be included in any actions. The FSA has confirmed however that it will be taking action against firms as a result of the review. It has also stated that the review was a hugely complex area covering many areas such as promotional literature, clarity of information, quality of advice as well as sales systems and controls, not simply non-disclosure of counterparty. My comments were made simply to highlight the fact that this is not another issue but merely the result of an existing and ongoing review. Since that review was started the industry has enjoyed somewhat of a rennaissance and I believe this is in part due to the increased transparency and disclosure, not to mention adviser understanding, now surrounding the industry. We should all know more by the end of this month and one would hope that this particular issue can then be put to bed.
Posted by: Gary Dale
FSA may not think this through
Lets use an example of the FSA unpholding a decision that the brochures should have been clear, fair and NOT misleading but they believe this to not have been the case. The adviser therefore is in a very difficult position. If the adviser believes they were clear to him/her and that they then explained them clearly to a client, then QED, if the FSA thinks they were flawed, then the adviser's opinion was flawed and ultimately the adviser could be seen as being joint and severlly liable for the failure. If the adviser issued and explained the relevant FSA guide on structured products, then will this be a get out of jail free card for the adviser? It is time the FSA either vet products of this type or at least when they decide something like this is flawed AFTEr the event, they explain what SHOULD realistically have been done as it is easy to be wise after the event...
Posted by: For a reason
gary dale has left the planet?
What a lot of tosh. Try lumping your silly marketing jargon at the thousands of innocent victims who have lost their money to the likes of Lehmans, NDFA, DRL, ARC and Keydata in your upwardly mobile structured product world.
Posted by: ripped off by ndfa
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Not having a go at you personallu BUT
Unfortunately Gary, your opinion is worthless until it is known fully how the FSA and FOS come down on this issue. If they hold the advisers who arranged aby structured plan even partly responsible for non disclosure when it would seem the FSA etc believe the brochures to have been "non compliant", then until the FSA say what SHOULD be in a brochure and it is compared to what is in your product brochure how can anyone in their right minds arrange anotehr structured product for a client? This is regulation by hindsight and small IFAs cannot afford unlike big firms who seem to keep phoneixing to be regulated in this way as the question is will the FSA allow a small IFA who fails as a result to even be deemed fit and proper or get fresh authorisation, while failures (including Clive Briault from the FSA who falls on a golden sword of £300k, John Tiner (the FSA Helmsan pore banking crash) and directors of failed networks), seem to just move on in the industry. If you say you'll never wotrk in the FS industry again if one of your products results in an IFA having a complaint upheld for your firms errors, then small IFAs might just get some confidence back! And from my words here I think one can safely say there are a lot of IFAs who believe the FSA have failed in their statutory objectives....
Posted by: For a reason