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Home > Opinion > Jeff Prestridge

IFAs finally fighting back over invidious Arch Cru scheme

Latest adviser redress bill almost twice the contribution from the companies caught in the Arch Cru scandal.

By Jeff Prestridge | Published Aug 15, 2012 | Regulation | comments

It was not the fault of advisers that funds initially marketed as low-risk and cautious, and categorised as cautious investments by the Investment Management Association, were actually as toxic as a nuclear cloud. The promotional material was put together by Cru. Don’t the directors of this company bear some responsibility for the misleading documentation they produced? And what was the FSA doing? Didn’t it have an obligation to check out the authenticity of the marketing material?

It was not the fault of advisers that the funds were invested by managers Arch in dubious assets (rusting Greek ships) outside the remit of the funds. It was responsibility of BNY Mellon, Capita and HSBC. And it was not the fault of advisers that some fund assets were misappropriated.

Thankfully, a growing number of people are now coming out of the woodwork to question the regulator’s targeting of financial advisers. Alun Cairns, feisty (and intelligent) Conservative MP for the Vale of Glamorgan, said he has ‘severe doubts’ over the fairness of the redress scheme. He argues, quite reasonably, that Arch Cru investors lost money because the funds failed, not because of the failure of financial advice.

Mr Cairns believes that rather than putting most of the blame (and cost of redress) on the shoulders of financial advisers, a global settlement should be reached involving all the parties involved in Arch Cru: everyone from investment managers, custodians, auditors, registrars through to regulators. It sounds like the right way forward. Everyone involved in the Arch Cru debacle should pay their fair share of the cost of restitution.

Others have also tried to put the role of financial advisers in the Arch Cru affair into perspective. David Severn, former head of retail policy at the FSA, said the regulator should have identified early on that the promotional material for the Arch Cru funds was both inadequate and in terms of risk description misleading.

If these failings had been addressed, Mr Severn argued advisers would not have gone out and sold the funds as low-risk investments. There are also limits, he argued, on the amount of due diligence that an adviser can do to ensure that a particular risk rating apportioned to a fund is actually correct. So to clobber advisers for selling the Arch Cru funds to clients as low-risk when they were presented as such seems pretty harsh. Spot on.

It is a view shared by a caring and long standing adviser I know from near Birmingham who fears he will be driven out of business as a result of recommending Arch Cru to his clients. In an emotional 15-page response to the regulator’s plans to hit advisers like him with a £110m bill, he said: “Clearly, advisers are not guilty of anything other than relying on information and assurances provided by the various parties that they are expected and allowed to rely on when recommending any investment fund. But the FSA is going to persecute us for doing so with regards to Arch Cru.”

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