What a difference a week makes
This week has seen a number of unwanted early Christmas presents for the IFA industry.
On Monday the FSA classified traded life policies as "toxic" and on Tuesday MPs and FOS met to discuss compensation for investors in Arch Cru (following last week's publication of a provisional Ombudsman's decision upholding an Arch Cru complaint). This week also saw a large number of IFAs served with claim forms by the FSCS, seeking damages in relation to Keydata products linked to SLS Capital SA (which invested in traded life policies).
As we reported on Wednesday, the FSA practised its product intervention powers on traded life policy investments, otherwise known as 'death bonds'. Unsurprisingly, the FSA's announcement has caused a number of investors to withdraw monies from funds invested in these 'death bonds', resulting already (for example) in the suspension of the EEA Life Settlement Fund.
The FSA's intervention is surprising given that its new product intervention powers have yet to come into force and it has sought to target existing products, rather than products before they reach the market. To ban a product before it can be sold may reduce competition and consumer choice. To ban existing products is likely to result in consumer detriment. It is worrying that the power is being actively wielded with the benefit of hindsight, retrospectively classifying products as unsuitable for retail investors. This inevitably damages the value of existing investments in such products and can lead (as in the EEA case) to liquidity problems and losses. This, in turn, potentially leaves yet more IFAs exposed to further complaints. The FSA's concern to protect future consumers appears to come at the price of causing detriment to existing investors - and their advisers.
Arch Cru has also once again hit the headlines. Although Arch Cru did not involve traded life policies, comments from the FSA have caused concern that similar complaints to those relating to Keydata may now be made in respect of Arch Cru. Margaret Cole of the FSA quoted with approval to MPs this week from the FOS provisional decision, saying reasonably informed IFAs should have concluded that the fund involved a significant degree of risk. This exposes IFAs who advised on Arch Cru to complaints for the balance of losses not recovered from the FSA's payment scheme.
The recent flurry of activity from the FSA will be seen by many as being too little too late in terms of saving its reputational legacy. However, whether by coincidence or design, in little over one week we have seen products branded as "toxic", IFA's targeted by the FSCS and Arch Cru coming once again to the fore.