IFAs finally fighting back over invidious Arch Cru scheme

It seems the independent finance advice sector, trampled on at will by this country’s financial services regulator, is prepared to fight back a little bit after all. What a pleasant summer surprise.

In recent weeks, a number of financial advisers and adviser representatives have come crawling out from under their rain-soaked duvets to confirm their disquiet over plans by the FSA to hit a portion of the adviser sector with a redress bill in the order of £110m.

A redress bill so onerous, I hasten to add, that it will drive scores of adviser firms to the wall, leaving those remaining to pick up the cost of these failures through higher levies from the Financial Services Compensation Scheme. A quite horrific outcome.

The ‘portion’ of course is those 795 adviser firms – some no longer trading anymore, others teetering on the brink of capitulation – that the regulator alleges mis-sold Arch Cru investment funds by the proverbial bucket load.

Unless the regulator has a change of heart (does a regulator have a heart, do I hear you ask?) in the next couple of months, these financial advisers will have to make good most of the losses their clients incurred as a result of Arch Cru’s implosion, leading to the suspension of its investment funds in March 2009.

For most advisers embroiled in this sorry affair it will sadly be a case of ‘goodnight Vienna’.

Justice done? A happy outcome for investors? Not in a million years of regulation.

I have followed the Arch Cru affair for well over a year and it has been obvious from the very start that the handling of this sorry episode in the history of the investment funds industry by the regulatory authorities has been questionable.

An initial £54m compensation scheme was brokered between the regulator and three blue chip companies that had responsibility for safeguarding the money given by investors to invest in Arch Cru funds. These companies failed to do their jobs satisfactorily despite taking big fees from the Arch Cru funds.

Unfortunately, and unreasonably, the details as to how this £54m figure was arrived at between the FSA and BNY Mellon, HSBC and Capita has never been revealed, fuelling the suspicion that the three companies have got off lightly. And with the £110m redress scheme now likely to be imposed on the adviser sector, the £54m deal looks more questionable than ever.

Think about it logically. Can it be the case that advisers are twice more responsible than the trustees and registrars of the Arch Cru funds (£110m against £54m) for the fact that investors ended up with dud investments? Of course not although I accept that some advisers, a minority, oversold Arch Cru to clients, leaving them horribly over-exposed and acting contrary to all the principles that underpin sound independent financial advice.