Some 12,000 investors with structured products that are now held by Reyker Securities could be forced to take their complaints to the Financial Services Compensation Scheme after two ombudsman decisions raised the prospect that claims over ‘double charging’ will be rejected.
A number of advisers had said they intended to bring mass claims via Fos in response to Reyker stating it would charge administration fees of up to £600 per annum to former Merchant Capital plan holders after it took on the client book. Plans transfered included those originally sold by Arc and Keydata, as well as Merchant Capital itself.
However, two recent Financial Ombudsman Service decisions may force a re-think, after separate complaints over fees charged previously by Reyker when it took over as Merchant Capital’s custodian in 2012 were rejected.
In the decisions, ombudsman Philip Roberts tells the investors that as Merchant is in administration they may be best served taking their claim to the FSCS. Reyker itself has previously said investors may not have recourse to the scheme because the plans have not failed.
In January 2013, FTAdviser revealed that structured products arm Merchant Capital went into administration. This presaged the collapse of parent company Merchant House Group, which was the subject of winding proceedings initiated by Reyker.
The firm, which had begun working with Merchant following the fall into administration of former custodian Pritchard in March 2012, stated that Merchant Capital and, subsequently, Merchant House had failed to pay administration fees relating to its book of structured product plans. It later took on the book, which covered some 12,000 investors.
FTAdviser later revealed that these investors were to be hit with up to £600 a year in administration fees, despite these costs having been included within their original purchase price.
Reyker said that the minimum fee for a “typical” investments will be £75 per plan. On top of this investors will pay £115 per annum if their product is a capital accumulation plan and £195 per annum if it is a monthly income plan.
It said that it intends to cap costs for investors, although this not guaranteed. Those in the capital plan may pay a maximum of £500 and those in the income plans may pay a maximum of £600.
The two complaints rejected by Fos were in relation to administration fees charged when it took over as custodian in 2012. The fee was on a sliding scale, with a £15 fee applicable if paid promptly, rising to £30.
In a letter to clients, Reyker stated that clients were able to use a different custodian, but that they would still be charged a fee for transferring assets to the new custodian.
Mr Roberts rejects both complaints, finding that the fee was not unfair as the investments had to be “safeguarded” which meant more additional work in a short space of time. He also describes Reyker’s letter to clients as “lengthy and detailed” and brands the fee “modest”.
In June, Ian Lowes, managing director of Newcastle-based Lowes Financial Management, wrote to Natalie Ceeney, Fos chief executive, to ask her to intervene over the annual fees of up to £600, following Reyker rejecting a test complaint on the grounds that the prospect of future charges was adequately disclosed.
Mr Lowes previously said: “Following the collapse of Merchant, Reyker are now seeking to charge clients what seems to be significantly more than double what they were originally going to receive from Merchant; as much as £600 per investment. This cannot be permitted.”
Chris Taylor, founder and managing director of the Investment Bridge, similarly railed against the fees, telling FTAdviser: “The levels of the fees that Reyker are stating they will impose does seem cause for concern.”
Mr Lowes then questioned whether this fee could fall back on to the FSCS, stating that it “must surely meet any further costs given that these have ultimately arisen because of the failure of at least two, and in some cases, three UK financial services firms”.
In May, the UK Structured Products Association has said it is seeking a view from the Financial Conduct Authority on whether investors can take their claims to the FSCS.
Adrian Barnwell, head of risk management and strategy at Reyker, previously told FTAdviser that he doubts it will be possible for investors to claim through the FSCS.
He said: “There certainly was the opportunity to claim in relation to Keydata and Pritchard but it relates to the loss of the actual investments.”
