Merchant investors could face fresh fees following collapse

Investors in Merchant Capital structured products are likely to be asked to pay additional fees to the former custodian of the plans, Reyker Securities, following the collapse of the former’s parent company, Merchant House Group, into administration.

FTAdviser revealed today (18 April) that Merchant House Group, the parent company of collapsed structured products provider Merchant Capital and IFA business Merchant House Financial Services, has itself gone into administration as it could not pay its structured products liabilities.

Reyker, which was the custodian of Merchant Capital until last year, said that the structured products arm had been obligated to pay for the ongoing custody and administration costs relating to structured product plans that it managed, but that it could not.

Reyker’s terms and conditions for Merchant Capital investment plans, seen by FTAdviser, says that Reyker reserves the right to introduce an additional charge in the future to cover any additional expenses incurred by Reyker for a “valid reason”.

It lists several examples, of which one is that if Merchant is “unable or unwilling to meet Reyker’s fees, costs and charges for providing our services to you as account manager”.

It said that no such additional charge will be introduced without giving clients’ three months notice. It adds that if investors do not wish to pay a charge they can terminate their contract and pay an administration charge of £400, though it says this charge may increase or decrease.

Ian Lowes, managing director at Lowes Financial Management, said: “We were very much aware when Reyker stepped in to fill the void left by Pritchard [Merchant’s former custodian that itself collapse last year] that the contract included clauses that meant if they faced a shortfall in their fees, Reyker could ask clients to cover the shortfall.

“We are hoping that Reyker won’t need to and will generate enough revenue from the book of clients and IFAs, but if this is not expected to be the case, under the terms of the contract, clients will be given three months’ notice.

“Arguably, an open cheque book had to be signed by clients and from our dealings with Reyker, we are hopeful that they will be more than fair with clients. As yet, we have not received such notice.”

In January this year, FTAdviser revealed that Merchant House’s structured products arm Merchant Capital went into administration.

Two months later, Leeds-based network and adviser support services provider Tenet Group stepped in with a rescue package to save the firm’s adviser arm Merchant House Financial Services, after it announced it had gone into administration.

Tenet acquired certain business assets of MHFS and announced its intention to transfer all of the company’s 70 advisers into its in-house appointed representative, Aspire Financial Management Ltd.

A spokesperson for Reyker said that the firm could not comment on the story and it was currently in discussions with the Financial Conduct Authority and its lawyers.