Aifa scheme to protect Keydata IFAs ‘would not be supported’

A proposal being considered by the Association of IFAs that would exempt smaller firms from paying recoveries to the Financial Services Compensation Scheme over failed Keydata investments will not get off the ground, IFAs have warned.

In a note seen by FTAdviser that was sent to the Council of Aifa, Robert Sinclair, Aifa director, proposes that the association “allocates resource” to a scheme to protect smaller firms and agree a criteria-based “dividend” payment from larger firms to satisfy the FSCS claims.

Mr Sinclair wrote that while less than 10 per cent of the firms claimed against are Aifa members, this claim has “potential to be repeated on subsequent issues”.

However, Ian Lowes, managing director of Lowes Financial Management and an Aifa member, said that IFAs have fallen into camps: those that sold on Keydata and those that did not, yet both are being penalised by the FSCS levy.

The FSCS announced in December there will be an additional levy of £40m to provide for payments relating to Keydata, Arch Cru and other smaller entities. The Scheme is also pursuing a legal claim against advisers that recommended Keydata Lifemark bond-based investments.

Mr Lowes believes the “arbitration scheme” will receive some objections from Aifa members who did not sell Arch Cru or Keydata products, as those that did sell these products would still be benefitting from the revenue brought in.

Mr Lowes told FTAdviser that he would instead support proposals that those IFAs who sold on Keydata and Arch Cru should pool their resources - “as they are all paying fees to the Financial Services Authority” - and counter-claim the ongoing FSCS court action.

He said: “Those advisers should counter-claim this as the FSA should have had a better hand of the situation. It is not just about protecting the end-consumer but IFAs as well.

“It might be better for Aifa to spend their resources by protecting the industry as opposed to bailing them out.”

Alan Lakey, partner at Highclere Financial Services and founder of rival trade body Adviser Action, said that he doubts the regulator would allow this scheme to get off the ground if it went ahead.

He said: “No way will this be agreed. It has no chance of getting off the ground. How can you be an independent arbitrator? Clearly this does not demonstrate fairness.

“The main reason why I have not joined Aifa is they were heavily in favour of the RDR and their support enabled it to go further. This [arbitration scheme] is very capital intensive so it won’t get off the ground.”

Derek Bradley, chief executive at PanaceaIFA.com, said he believed the Aifa measure is positive in essence but he questioned whether it should be an industry scheme rather than one operated through a trade body.