The Financial Services Compensation Scheme is to reopen cases brought against advisers in relation to investments in an offshore luxury property scheme after changing the way it calculates losses.
The lifeboat scheme has told FTAdviser it has a list of claimants who received interim payments below the scheme's maximum of up to £85,000, to whom it would now write and pay additional compensation where necessary.
The claims concern The Resort Group assets and were brought against 19 failed advice firms, including British Steel adviser Active Wealth.
The Resort Group's property assets, four hotel developments in Cape Verde, were sold to UK Sipp investors over the past decade in one of two ways - whole hotel rooms and fractional shares in rooms. The group also offers a range of corporate bonds.
An FSCS spokesperson told FTAdviser: "We have a list of all customers who have received interim payments, that are less than the maximum FSCS compensation limit, and we will re-open these claims and pay any additional compensation due to those customers."
The FSCS latest move comes after it said earlier this month it had changed the way it calculates losses and would now allow customers with full ownership of units to use independent valuations, and customers with fractional memberships to apply nil value for the purposes of calculating compensation.
Investors had previously claimed the scheme had relied on "unrealistic" valuations of their assets from The Resort Group, leading to lower or no compensation payments.
The spokesperson said: "For customers with full ownership of units, FSCS can accept independent valuations from a certified company, although these will be sense-checked against the value of similar properties on an online property listing website.
"If we have no independent valuation, then we will only be able to use the valuations provided by TRG.
"However, where customers have received a letter from TRG confirming they will be receiving an amount to be paid into their Sipp following the sale of one or more units, we can use the valuation provided, apply 10 per cent uplift and take into account notional pension transfer losses at quantification date."
The FSCS has a maximum compensation limit of £85,000 for firms that failed after April 1, 2019, and £50,000 for firms that failed between January 2010 and that date. Clients of firms that failed prior to 2010 will receive a maximum payment of £48,000.
FTAdviser reported on Monday that the scheme has so far paid out £5.9m on claims of this nature.
The FSCS said it holds details of all customers who have only received limited or interim payments due to problems with the assets' valuations and advised they did not need to take any further action themselves.
"Where customers have received interim/partial compensation for fractional membership investments, they do not need to contact FSCS about receiving further payments," it said.
FTAdviser reported in 2018 how many investors claimed they had been promised guaranteed returns on their investments, only to be disappointed by the returns that materialised - leaving them with Sipp fees that ate up much of the returns they did receive.
Like many hotel groups across the world The Resort Group has also been impacted by the coronavirus crisis and associated lockdowns.
In an email to a UK Sipp investor this month Charlie King, COO of The Resort Group, admitted investors may find it difficult to part with their assets during the pandemic as there was now almost no buyer interest in fractional stakes in the group’s properties.
TRG investments - and the way they were sold - were put under investigation by the Financial Conduct Authority in 2017, a probe that is understood to still be ongoing.
Good guys pay
Under current rules functioning advice firms will be expected to make up for the cost of compensating any claims brought against failed advisers.
But change could be on the horizon. In a speech yesterday Charles Randell, chairman of the Financial Conduct Authority, said the system needs to be redesigned so "polluting firms" in the financial sector paid the bill for high risk and unsuitable investments, not "well-run firms" via the compensation scheme.
The chairman of the City watchdog echoed what many advisers have been saying for a long time, as he warned the already "unacceptable" FSCS levy was likely to increase further as a result of the coronavirus crisis.
The FSCS levy to be shouldered by advisers this year had increased by £16m to £229m, predominately as a result of an extra £44m set aside by the lifeboat body to meet claims for misleading advice against the collapsed mini-bond provider London Capital & Finance.
carmen.reichman@ft.com
