The Financial Services Compensation Scheme has declared Propertybourse in default, opening the floodgates for claims against the promoter of failed property funds.
A brief statement from the FSCS confirmed the company was declared in default on 8 July and it will now investigate each claim on a case-by-case basis.
In May, FTAdviser reported at least two advice firms would struggle to pay compensation linked to complaints about Propertybourse investments, amid disputes between advisers and the fund promoter over who was at fault.
Investors complained to the Financial Ombudsman Service they were mis-sold the schemes, with the IFAs looking unlikely to be able to meet Fos-ordered redress costs.
If they do fail, the bill is passed to the wider financial advice sector via FSCS levies.
Propertybourse promoted unregulated collective investment schemes investing in commercial and residential properties such as leisure parks and shopping centres, in the UK and overseas.
It entered administration in November 2013, following an order issued in the high court, with the administrator putting investor losses at around £20m; a figure Propertybourse disputes.
A Fos decision published in May demanded advisory firm Financial Aims Limited pay a client compensation after putting half their pension in the Guernsey-listed Opus Propertybourse Performance fund.
However, the adviser’s professional indemnity insurers declined to cover the claim and Financial Aims was unable to meet the cost itself.
At that stage, an FSCS spokesman said it was “investigating claims against IFAs for negligent advice”. However, it is yet to formally put any involved firm in default, which would allow claims to be paid.
Another firm, Activate Financial Management, had three upheld Fos complaints against it, with its principal Stephen Dockerty arguing promotional material for the funds had been misleading.
He is currently working with professional indemnity insurers to get the claims settled and lead further investigations into Propertybourse and related funds, but did not wish to comment on the FSCS declaration.
In the summer of 2014, a number of financial advisers who recommended Propertybourse funds raised £12,500 for an investigation into the accounts of the business in both Guernsey and the UK, in a bid to find recoverable assets.
In March 2015, an interim report circulated to a group by Propertybourse’s appointed administrators BM Advisory, attributed the funds’ demise almost entirely to poor management.
Robin Christie, founder of Propertybourse, disputed the appointment of BM Advisory and denied its claims.
He said the 2008 financial crisis caused funds to struggle for liquidity after banks withdrew capital from the market, adding that while the funds stabilised, they were hit again by the re-emergence of the euro crisis in 2011.
This article has been revised since original publication in relation to how many financial advisers raised money for an investigation in 2014.
peter.walker@ft.com
