SVS Securities - shut down?

BonScott

I have got about 300k in an svs shares isa. Assuming svs haven't sold/lost them but the administrators don't find a suitable isa home for them, am I liable for a large tax bill?

masonic

BonScott wrote: »

I have got about 300k in an svs shares isa. Assuming svs haven't sold/lost them but the administrators don't find a suitable isa home for them, am I liable for a large tax bill?

No, if the administrators are unable to sell investors accounts to another platform, then there are a couple of options open to the administrators to enable investors to preserve the ISA status of their capital. They could either accept and process ISA transfer applications rather than distributing the proceeds of ISA accounts, or they could distibute the proceeds of the ISA and at the same time provide a letter granting investors an additional permitted subscription so that they can sign up for a S&S ISA elsewhere, pay in the proceeds and rebuild their portfolio.

There are two scenarios in which there could be a tax bill. The first is if it was determined that the investments you held did not qualify as ISA investments (you'll be able to check whether or not your investments can be held in a S&S ISA anywhere else, but presumably you invested in FTSE All share or AIM stocks, and not unquoted companies and non-readily realisable securities). The second is if SVS was not in fact a valid ISA manager (this is a highly unlikely scenario).

BonScott

Thanks masonic, that's a weight off my mind.

My2penneth

Article in the FT today.


When the UK stockbroker SVS Securities collapsed a fortnight ago, the City could be forgiven a sense of d!jà vu.

A retail-focused broker and wealth manager with a small number of Aim corporate clients closed after the regulator stepped in. Seventeen months ago, Beaufort Securities met that fate. Now it is SVS.

Beaufort’s collapse prompted questions of the Financial Conduct Authority and whether it had acted quickly enough to protect consumers.

In that case, an FBI sting that culminated in charges by the US Department of Justice was at the centre of the broker’s closure. The FCA delayed shutting Beaufort for several months to allow the FBI to finish its undercover operations, despite hundreds of complaints from customers about their assets being invested in higher risk assets than they wanted.

With SVS, there is no FBI angle. The FCA blocked the broker from doing new business after finding SVS had questionable commission arrangements, promoted high-risk bonds to retail investors and could not explain how it valued illiquid assets.

But questions once again linger about the length of time the FCA took to react and whether some of the smaller outfits it regulates are slipping under the radar.

The watchdog first raised concerns with SVS in January 2018. It wrote to the broker about the “lack of due diligence, high concentration and liquidity risk” of some bonds SVS had invested clients’ money in. It asked SVS to consider the risks posed by the bonds and act on its concerns. SVS assured the FCA it would.

The FCA did not return until May 2019. More than two months after that, it imposed restrictions on the broker, which culminated in the appointment of administrators this month.

The problems it uncovered are extensive and, by and large, not new. They were present in 2018, when the FCA first looked at the company and yet did not act to shut it down.

Many of them relate to “model portfolios” offered by SVS’s discretionary fund management arm. Many clients allocated the model portfolios were looking to invest their pension funds after transferring out of defined benefit schemes — not the sort of investor likely to be looking for high risk, illiquid investments.

But for three of its model portfolios, SVS chose an investment that eventually made up more than half the assets in each of them: Ireland-listed bonds issued by a company called Corporate Finance Bonds Ltd (CFBL).

Owned by a self-styled “insight architect”, CFBL had only two employees in its 2018 financial year, one of whom was the owner Stuart Anderson. CFBL’s bonds were designed to fund secured loans to small and medium-sized companies, but according to the FCA, SVS had little detail on what those loans were or even if they were to affiliates of CFBL.

Rather than cut the exposure of the model portfolios to the bonds after the FCA’s 2018 intervention, SVS instead increased it. Demetrios Christos Hadjigeorgiou, SVS’s boss, told the FCA he thought the bonds were some of the strongest performing parts of the model portfolios. The watchdog was not convinced. In official parlance, the FCA “does not consider this assessment to be supported by evidence”.

What the FCA did find was evidence of some racy fees, commissions and charges. Customers who did a pensions transfer or switch could find their investment pot depleted by more than a fifth in the process.

On top of that there were the commissions SVS received from bond issuers: according to the FCA, it was 10 per cent from at least two of the issuers.

Other investments in the model portfolio had SVS directors as shareholders or directors at the time an introduction was made or a decision to invest taken.

To cap it all, there was a loan facility of £1m provided by a company controlled by Mr Anderson of CFBL to SVS, secured by a fixed and floating charge over SVS’s business that is still listed as outstanding.

The FCA is clear that it does not operate a zero-failure regime. Companies it supervises will go bust, and there will inevitably be customers caught up in that.

Lessons have also been learnt from Beaufort Securities’ collapse. When it went under there were months of uncertainty about who would pay the administrators costs. This time, the FCA was quick to assure customers that costs of returning their money would be covered by the Financial Services Compensation Scheme guarantee.

That still leaves a wrinkle, though. The FSCS only applies to “eligible clients”. The CFBL bond documents, for example, say explicitly that they are not covered by the FSCS, though SVS customers still may be. It could take months for the administrators to unpick.

A familiar story, and an even more familiar wait.

masonic

My2penneth wrote: »

That still leaves a wrinkle, though. The FSCS only applies to “eligible clients”. The CFBL bond documents, for example, say explicitly that they are not covered by the FSCS, though SVS customers still may be. It could take months for the administrators to unpick.

This really should be of no concern. If SVS put clients into these bonds under advice, which is the current understanding, then those clients could not make a claim to the FSCS because the investment lost money (because you can't do that with any investment). They could, however, complain to the FOS about the advice they received and would be awarded compensation that would put them back into the position they would have been in had they not received the bad advice. That FOS award is an obligation on SVS, which is eligible for FSCS compensation if SVS cannot pay up.

The CFBL bond is not the most scandalous bond in this mess, the most scandalous is the SVS Securities 5 year 8.25% bond, which has defaulted and which many investors bought with no advice. So no avenue of FSCS compensation for them, unfortunately.

Ravima

My literature from this 8.25% Bond says that up to £2.5m would be raised. It is now stated that there is £5m o/s here. Has anyone any idea of where the other £2.5m came from. Were we sold a bond with total of £2.5 whilst £5m was sold??

masonic

Ravima wrote: »

My literature from this 8.25% Bond says that up to £2.5m would be raised. It is now stated that there is £5m o/s here. Has anyone any idea of where the other £2.5m came from. Were we sold a bond with total of £2.5 whilst £5m was sold??

There might have been an over-allotment facility, or more than one issue of the bond. Interestingly all information about this bond seems to have disappeared from the internet. We know from the last set of accounts that SVS owed a total of £9m, of which £5m was to bondholders. At that time it appeared to have net assets (I note £4m of its supposed assets consistent of 'prepayments'). A year later, after having defaulted on the bond, the situation may be very different.

bowlhead99

masonic wrote: »

The CFBL bond is not the most scandalous bond in this mess, the most scandalous is the SVS Securities 5 year 8.25% bond, which has defaulted and which many investors bought with no advice. So no avenue of FSCS compensation for them, unfortunately.

Going off the FT article, I would have thought that SVS allocating a high concentration of clients' discretionary portfolios into a bond issuer paying high level of commission to SVS, and which was also lending money to SVS, when SVS had only performed limited diligence on the opportunities and claimed they were among the 'strongest performing' parts of the portfolios without there being evidence for it... along with various other problematic examples highlighted by the article, is a bad thing. If the FT accusations are in the right ballpark, seems pretty scandalous. You would hope most regulated discretionary asset managers don't behave in that way when constructing portfolios for their clients.

Whereas on the other hand, you mention that more scandalous is that some people invested in the SVS Securities 5 year 8.25% bond and SVS probably won't be able to pay them back because they went out of business. But businesses default on borrowings all the time and go out of business. It was clearly a risk that would be known to the people choosing to invest in that 5 year bond.

If they invest in the bond without advice, as you mention many of them did, so they have no compensation, is that a scandal? It seems to me like it's just people making a bad judgement on an investment.

To me it seems *less* scandalous that they simply made an investment in a company that went bust, than if those people paid a regulated investment adviser to exercise professional judgement to build a discretionary portfolio, and that adviser decided to dump most of the money into a bond issuer paying him large commissions without doing decent due diligence, or into private investments where the advisers' senior employees were also shareholders or directors, and the investees' management were lending money back to the advisers on the side.

Hopefully the people who got burned by SVS's investment decisions made on their behalf will get some compensation from FSCS, and the people who got burned by their own bad investment decisions will not, and then it will serve as some sort of example about what is supposed to be covered by FSCS and why you shouldn't invest in mini-bonds without advice or being a sophisticated investor with a lot of up front due diligence or being able to afford the losses?

But perhaps I am being unduly harsh on the investors because of not being one of them, and not knowing how the SVS 5 year bond was promoted.

masonic

bowlhead99 wrote: »

Whereas on the other hand, you mention that more scandalous is that some people invested in the SVS Securities 5 year 8.25% bond and SVS probably won't be able to pay them back because they went out of business.

That's not exactly what happened. SVS defaulted on its mini-bond, then it was placed under FCA restrictions in relation to another matter, then it was placed in administration. According to the FCA supervisory notice, SVS didn't have a plan for repaying the bond, but that wasn't the main reason the FCA took action. It would have been interesting to see how the situation would have played out had the FCA not become interested in SVS for other reasons. It appeared the default of the bond was without consequences, and the FCA commented that not all of the investors had been repaid, perhaps some had - those knowledgeable enough to pursue the debt, perhaps?

But businesses default on borrowings all the time and go out of business. It was clearly a risk that would be known to the people choosing to invest in that 5 year bond.

That's certainly true and I don't mean to suggest the fact SVS defaulted on its debt is surprising. But borrowing £5m for 5 years from your customers and others when you are making an annual profit of about £50k, have insubstantial assets and no good plan as to how to repay the debt when it becomes due. There were certainly red flags in clear sight for anyone who knew where to look. But on the other hand, it was allowed to market this product to its retail clients in clear sight without any eyebrows being raised.

To me it seems *less* scandalous that they simply made an investment in a company that went bust, than if those people paid a regulated investment adviser to exercise professional judgement to build a discretionary portfolio, and that adviser decided to dump most of the money into a bond issuer paying him large commissions without doing decent due diligence, or into private investments where the advisers' senior employees were also shareholders or directors, and the investees' management were lending money back to the advisers on the side.

I'm happy to concede the advisory shenanigans are more scandalous.

Hopefully the people who got burned by SVS's investment decisions made on their behalf will get some compensation from FSCS, and the people who got burned by their own bad investment decisions will not, and then it will serve as some sort of example about what is supposed to be covered by FSCS and why you shouldn't invest in mini-bonds without advice or being a sophisticated investor with a lot of up front due diligence or being able to afford the losses?

But perhaps I am being unduly harsh on the investors because of not being one of them, and not knowing how the SVS 5 year bond was promoted.

It was promoted to me via the website (I had my bargepole ready so didn't pay much attention to the details). There are one or two bondholders who have been frequenting this thread, perhaps they could comment on the sales process.

Reaper

My2penneth wrote: »

Rather than cut the exposure of the model portfolios to the bonds after the FCA’s 2018 intervention, SVS instead increased it. Demetrios Christos Hadjigeorgiou, SVS’s boss, told the FCA he thought the bonds were some of the strongest performing parts of the model portfolios.

The FT doesn't give figures so it isn't clear just how bad the behaviour of SVS was.

According to Wealth Manager (link) their income fund had 51% invested in the questionable company when the FCA warned them to change strategy, but they instead increased this to 78%

It's worth reading the 2 pages together as details from one are missing from the other.