We now learn that the FSA did not take action against the ARM Life Settlement Fund (which was under scrutiny) in August 2010 because to have done so “could have led to a
run on the fund”. They went on to say that “we (the FSA) decided not to publish
the supervisory notice at the time because in (our) opinion it was likely to
have caused a run on the portfolio in the form of redemption requests”.

Given that that the supervisory notice which said that the firm presented ‘a risk to consumers by continuing to be permitted to conduct  a regulated activity in respect of new business relating to products linked in any way to investments linked to ARM’ was issued on 17^th August 2010 (but not published), can the FSA now explain why on November 28^th 2011, Margaret Cole issued a statement condemning all life insurance funds as ‘high risk’ ‘toxic’ and ‘Ponzi schemes’ (a term now quietly dropped by the FSA incidentally, because a Ponzi scheme by its nature is fraudulent and cannot be substantiated and Cole as a lawyer by training should have known better than to make such a claim), which resulted in
perfectly sound funds such as the EEA Life Settlement Fund having to suspend dealing due to “a run on the portfolio in the form of redemption requests” thus disadvantaging investors and causing a totally unjustifiable lack of market confidence which the FSA is supposed to prevent, was seen to be in investors best interests?

I agree with most of what you have said (read more) and I too know Robert quite well and
respect his views.

I was one of those you mention, in that I ‘graduated’ in 1995 after 10 years with
Equitable Life to become an IFA. For the first two years I was like a kid in a
sweetie shop – so much choice. But after a while I became dissatisfied and knew
there must be another world beyond the one I was in (Jonathan Livingstone
Seagull – a book I never understood!). I realised of course that despite my own
professionalism and probity I was still working within a commission-driven
sales environment and that ultimately it was impossible to provide the
long-term service and advice to my clients that I aspired to. If
I am to disagree with you on one point, a commission-based IFA can never be
unbiased no matter how hard he tries. Malcolm Murray at Transact puts it
perfectly: “If you want to know whether the advice you are receiving is
genuinely impartial/unbiased, you need only ask one question: ‘Who pays?’ if
the answer is anything other than: ‘me’ (the client), then impartiality is not
possible.

So, in 2001, Steve and I set up SGWM on the basis and principles of what we now
refer to as RDR. TCF is deeply imbedded in our fee-only culture and of course
CAR is a given. Although we appreciate that the term ‘Wealth Management’ is
much abused and even the spotty youth at NatWest is prepared to offer you a WM
‘service’ for your £10k premium bond winnings, it was not the case back then
and when we say we are WM’s that’s what we mean – we manage our clients’ wealth
(all of it), in other words we provide high quality financial planning and
investment management encompassing all of the client’s affairs.

We chose not to embrace ‘IFA’ for the reasons outlined above, although I do not
say that out of any sense of superiority, but when one considers that SJP to
name but one, run riot around the country pretending they are something they
are not and get away with it, one wonders whether there is any point
perpetuating the cause. Post 2012 I believe we shall be left with a bugg*rs
muddle frankly and Joe Public will be no better informed than he is now. It is
up to firms like us, Syndaxi and hundreds (thousands?) of others to promote the
cause and I do believe we shall win out.

My major concern with RDR is the ‘mass affluent’. The better off will be serviced
by us and those like us and we’re already geared up for it; Mrs Miggins can get
her ISA from Barclays (a shame but there we are), but what of the couple with
2.4 children with a combined income of say £50k. They’re doing well, they are
‘comfortable’ and they very much need good financial advice whether they
perceive it or not, but they can’t afford fees for financial advice; where on earth are they going to find say £1000 from with all the other pressures on their income? I don’t want them and they simply don’t deserve to be ripped off by the banks and I don’t know what the answer is.

In the film ‘The Aviator’ starring Leonardo de Caprio and
Cate Blanchett playing Howard Hughes and Katherine Hepburn respectively, there
was a memorable scene when Hepburn, born of a very wealthy New England family
and the young Hughes who was evidently ‘new money’ were at a (Hepburn) family
lunch.

Mrs Hepburn senior declared to Hughes that they ( the
Hepburns), “Had no care for money”.

Hughes replied: “Do you know why that is, Mrs
Hepburn?”

“No” she said, “she did not”

“Well” said Hughes, “it’s because you’ve
already got it”

Dear Mr Lilley

Re:       Proposed amendments to the Draft
Financial Services Bill

I refer specifically to the letter sent to you by Andrew Tyrie, Chairman of the Treasury Committee Treasury Committee, dated 25th October 2011, read more particularly point (8) and the inflammatory statement issued on behalf of the FSA by Margaret Cole on 28^th November 2011 regarding ‘high risk’ and ‘toxic’ traded life policy investments (TLPI).

In his letter of 25^th October, Andrew Tyrie raised serious concerns about the proposed FCA,
specifically that the body – left unchecked – might go too far “in assuming
that producers of financial services are ‘guilty until proven innocent’ in a
framework with little or no redress against an overbearing regulator” (my italics). He also notes in point (8) that “The FCA will have what may be argued is a draconian new power to ban products”.

Along with many others, I was dismayed and shocked at the FSA’s pronouncement on Monday 28th November (a mere month after Mr Tyrie’s letter to you), regarding TLPI; I refer you to the Financial Times article on the same date:

“FSA warns on ‘toxic’ life settlement funds” read more

The statement is ill-thought out, partial, emotive and uses language unbecoming of a regulatory authority. The apparent evidence for their concern is inaccurate and baseless
and may have far-reaching effects of which they appear to be blissfully
unaware. Concern about TLPI arose as a result of the collapse of Keydata, but
Cole neatly sidesteps the reality that Keydata was a case of out-and-out fraud,
not the underlying investments; a fraud that the FSA manifestly failed to
notice, let alone prevent, despite repeated warnings.

In the statement Margaret Cole warns the financial services industry of its possible ‘first
ever’ ban on marketing a product and its ‘interventionist’ attitude; strong
words from an entirely unelected body whose ‘attitude’ is causing great concern
among many of your elected parliamentary colleagues.

As a director of a financial services firm that was founded nearly 11 years ago on the principles we now refer to as ‘RDR’ and ‘Treating Customers Fairly’, we have always
operated on a non-commission basis where the client pays us directly for
genuinely impartial service and advice, I take exception to the implicit slur
in Cole’s statement that we have “all” been involved in the sale of ‘death bonds’.

The only TLPI we use is the EEA Life Settlement Fund. We have conducted exhaustive due diligence on this fund as well as obtaining further evidence from larger investment
companies who have deeper pockets and more resource than we have, to satisfy
ourselves in every respect that the fund is run in a fit and proper manner. For
the FSA, on a whim, with no foundation, to arbitrarily condemn their company
and its product is quite breathtaking.

As a result of their outrageous, unfounded announcement, EEA has had to suspend dealing. If and when the firm is able to resume activity, the likelihood is that they will
have to liquidate their holdings at distressed prices, meaning that investors
will not get back all (any?) of the money they invested and the FSA will be
able to smile smugly and say ‘I told you so’.

The key point is that the FSA consultation on life trade policies is still open, but the FSA have pronounced their verdict before the consultation is anywhere near complete,
(guilty until proven innocent). They have in addition announced that they
will ban the selling of these policies before they know if they will have that
power in the FCA – all of which is still under consultation.

It would seem that the FSA is trying to prove that these investments are unsafe by saying they will ban them and that they are ‘toxic’,  to make certain  that
traded life settlements will actually fail. The FSA can then say that they have
been ‘proved right’ and insist that the new FCA is granted draconian powers to
ban products without fair consultation and discussion with advisers.

It is interesting that this is happening when the FSAs replacement – the FCA – is having its remit and extent of powers discussed in the Financial Services Bill in parliament.  It is timed perfectly and deliberately in order that the FSA can insist that the FCA has
these draconian powers to ban products without proper consultation and
discussion.  Further evidence of the FSAs intent is that the Financial
Services Bill is being rushed through and is expected to become law by
February.

Cole and her team are well aware that with the Christmas break nearly upon us, there is little time left before the proposed implementation of the Bill in February.

Their action has not been in the public interest.  It has been to destroy a whole sector without regard to those who are beyond reproach and have spent years of dedicated hard work to promote professionalism and the financial well-being of their clients.

If parliament does not take heed, the new FCA will have all the draconian powers they need and will be able to act without any threat of redress or accountability. The regulator is supposed to act in the best interests of the consumer, but this example of TLPI demonstrates they are doing anything but.

Read more