Archive for September, 2009

Treating Customers Fairly?

Posted by robin in Financial Articles Friday September 25, 2009 6:08 pm

“Treating Customers Fairly.”  That was the banner under which the FSA launched an initiative last year to improve the professional conduct of financial advisers.

 

To those advisers who have only ever tried to do right by their clients, it was a little bemusing - a statement of the obvious. The regulator, however, saw the need to enforce a decent soul in financial organisations deemed devoid of one. TCF must now be stamped on processes, literature, training and culture to instil satisfactory client “outcomes”.

 

Away from the glass towers of Canary Wharf in the streets below, after nine months of exhaustive enquiries Narinder and Vijay Sood are still seeking a satisfactory outcome for an investment gone wrong…

 

The story begins with a business sale. After decades of hard work and long hours the Soods successfully sold their grocery business in early 2005 and retired. They are debt free and during their working years had never invested in anything more than bank deposits.

 

Following the conclusion of the sale, Mr Sood recalls being tipped the wink by his accountant, at Doshi & Co. that he could get him 10% interest on his money. It was an attractive rate at a time when bank base was under half that and he placed implicit trust in his accountant. This, in spite of the fact his accountant was not licensed to give investment advice. Also, in 2001, he had reportedly been banned from being a director for 12 years and ordered to repay £2m following the demise of a wine import business. Mr Sood was aware of this history.

 

The accountant put him in contact with an IFA at Doshi Financial Services Ltd, a company owned and controlled by his wife and trading from the same premises.

 

The IFA, Mr Valjinder Virdee, duly relieved the Soods of £100,000 from the sale proceeds of their business. The investment presented by the IFA was in a 5-year bond. The “Asset-Backed Securitisation Bond” was to start on 31 March 2005 and end on 31 March 2010. It promised 10% pa income in quarterly instalments and, the Soods believe, but are not totally sure, return of capital at the end of the period.

 

As novice investors, they did not question the eye-popping interest rate and did not understand the underlying asset-backing. They placed absolute faith in their advisers. Ultimately these bonds were invested in Life Settlements, ergo second-hand US life insurance policies. Unhappily, the issuer was the Luxembourg-based and now notorious (post-Keydata) SLS Capital SA.

 

It was marketed, say the Soods, by Global Holdings International Ltd, a Gibraltar-based “fund and service provider to financial advisers and wealth creation specialists around the world” announces their website. Their representatives appeared with Mr Virdee at the Soods’ home to help secure the deal.

 

The Soods account of Mr Virdee’s conduct implies scant regard for the regulatory process required of IFAs for such transactions. A full picture of their circumstances was allegedly not obtained, neither was a risk profile and so on. The only letter they have in their possession from Mr Virdee is the briefest of notes to tell them where in Luxembourg to transfer their money.

 

They were only ever offered this single investment product, they say, and don’t remember ever seeing a brochure - just “paper photocopies”. Being an offshore investment, commission was not disclosed.

 

Still the bond worked for a while, so everyone was happy. But then when the balloon went down on SLS Capital SA, the Soods income payments stopped. The net payments amounted to more than £8,000 pa, more than a third of their joint retirement income. They now cover this hole by dipping into their remaining capital.

 

After the last payment in December 2008, their wild goose chase started.  What happened they wanted to know and what can we do about it?

 

The Soods have been tenacious in their enquiries. They contacted their accountant. They were no longer clients and he didn’t want to know. They spoke to their IFA, Mr Virdee. He was sympathetic but hasn’t been much practical help. He’s also now set up a new business after Doshi Financial Services was wound up in 2006 “upon the petition of” Legal & General.

 

His new practice G11 Financial Management Ltd includes on its Home Page a tab entitled “Favourite Stocks”. The contents to be found there at time of writing include:

 

“Everybody has been worried about the financial markets with the news that Northern Rock are in trouble. To be truthful Northern Rock are only in trouble if we think so, and start to withdraw, sell shares. NR is one of the strongest companies in the world. Click on the links below (not included) to get some more information on the way the company is shaped up to face the future. We know some people will be busy buying the NRK shares to capitalise on the down turn in the company.”

  

And on…they spoke to their contacts at Global Holdings International Ltd. They were initially sympathetic but now no longer take their calls. The Soods spoke to the FSA about a claim against their IFA. They were advised that because his former business had now ceased and he had started a new one, there was no claim against the individual concerned.

 

The FSA put them on to the Financial Services Compensation Scheme to explore a compensation claim. They understood it as a complaint against the bond itself and informed the Soods it was an offshore investment and so not their problem. They passed on contact details to the Luxembourg regulator.

 

So they contacted the Luxembourg regulator – the Commission de Surveillance du Secteur Financier. There they discovered SLS was not a regulated entity, so investors are not eligible for compensation anyway – a key point causing the UK’s Financial Services Compensation Scheme to dwell on its decision as to whether to compensate Keydata investors.

 

They contacted Luxembourg replacement Custodians, Equity Trust. Nothing. They contacted the original Custodians too, MeesPierson Intertrust via their parent, Fortis bank. They even got in contact with the judicial authorities in Luxembourg, “all in vain”.

 

They contacted PwC’s Luxembourg office, ex-auditors of the now defunct SLS Capital, and coincidentally, appointed administrators in the UK clear up job of the Keydata mess. It’s out of hands now PwC Luxembourg told them.

 

They emailed BWT Holdings, the Labuan-based holding company of SLS Capital. An operations manager promised to get back to them but hasn’t. They called BWT Holdings Chairman David Elias at their Malaysian tax haven lair of Labuan, to find the line, like the Chairman, was dead. BWT’s London legal representative told them it’s with the judicial authorities in Luxembourg and he can’t discuss it. 

 

Experienced investors will have tut-tutted at the warning signals screaming from the get go and ponder the old cliché that a fool and his money are soon parted. The morality tale may be as old as the hills but the regulator is not there to pass judgment but to provide the greatest protection to those most in need of it. Yet here we find a situation where the Soods appear to have fallen between the cracks in between, in spite of what appear more than reasonable grounds for some form of compensation claim. They have been left alone floundering in a bewildering world of international trustees, agents, custodians and regulators…with little help yet from anyone.

 

Treating customers fairly? The Soods are left to wonder.