Protect your ISA / SIPP - please sign this petition now

Aendryr · 1 July 2018 at 6:26AM

Most of the members on this board might have heard about the Beaufort securities collapse in which the administrators PWC wanted to raid the shares / money of clients in order to recoup fees for administration. This has happened in the past with previous broker insolvencies such as Hartmann Capital, Fyshe Horton and Finney etc

This is legal and possible because of a certain unknown Rule 135 of the Special Administration Regime that allows administrators to use client shares / assets to fund the administration on the collapse of a stock broker or wealth management firm.

Shares / cash within ISAs, SIPPs and trading accounts are marketed as ring-fenced, yet this rule 'breaks' that ring-fence and creates a conflict of interest between returning assets to clients in a timely fashion and the administrators' corporate motivation to maximise fee income. This rule gives administrators an open cheque book as PWC proved when they came up with a bill of £100m to return shares / money to Beaufort's clients.

Would appreciate it if everybody would sign this petition and ask others to do the same. Thanks in advance,

Am not approved to post links as I am a new user, so please replace the x with a t in the link below

hxxps://petition.parliament.uk/petitions/222801

bowlhead99 · 1 July 2018 at 8:00AM

Aendryr wrote: »

This rule gives administrators an open cheque book as PWC proved when they came up with a bill of £100m to return shares / money to Beaufort's clients.

To be clear though, they haven't actually sent anyone a £100m bill -they had an initial high estimate of what it would cost to sort out all the crap and they have subsequently indicated a lower figure.

The explanatory memo here (http://www.legislation.gov.uk/uksi/2011/1301/pdfs/uksiem_20111301_en.pdf) gives the context of the law:

Costs of the realisation of client assets (see rule 137 of part 4 of the Rules)
7.11
In the application of paragraph 99 of Schedule B1 of the Insolvency Act 1986, the costs of the administrator in pursuing Special Administration Objective 1 (ensuring the return of client assets as soon as is reasonably practicable) shall be borne by the clients. This follows the rule laid down in case law that liquidators who deal with trust assets are entitled to be paid out of those assets for the work which had been carried out. The Rules provide that the administrator shall propose in the distribution plan for client assets how the administrator is to retain certain client assets to pay the expenses of the administration in pursing Special Administration Objective 1.

With ~300 people on the petition so far (I'm not one of them) there is a long way to go before hitting 100k people to have it brought up in Parliament. It has of course already been brought up in parliament a couple of months ago when the practice was enquired about; administrators have had these powers since the collapse of Lehman Bros which was a very long, expensive and cumbersome unwinding.

Aendryr · 1 July 2018 at 8:08AM

To be clear though, they haven't actually sent anyone a £100m bill -they had an initial high estimate of what it would cost to sort out all the crap and they have subsequently indicated a lower figure.

Thank you for adding that. It was revised to £55m which is still by any standards extreme. The administration of Fyshe cost only £3m.

Yes, there is a long way to go, but I am optimistic that we will hit it.

It is in the interests of everybody to sign it as not doing anything about it would not be right.

masonic · 1 July 2018 at 8:10AM

This petition is highly flawed and I won't be signing. FSCS protection applies in the case of bad advice and firms declared in default. It covers the first £50,000 of losses per client and will be going up to £85,000 next April.

At the time if its collapse, Beaufort had a reputed £900m of assets under management, spead between 14,000 investors. For administration costs of £100m (since reduced to £55m, but let's stick with £100m) to create a >£50,000 loss an investor must have held more than £450,000 in assets. However, Beaufort appears to be an advisory service and investors want to be compensated for the bad advice that led to asset writedowns of £300m. These were the result of investing in risky illiquid (dare I say dodgy) assets, so investors with a more modest £150,000 and above may end up suffering investment losses. Investment losses wouldn't have been protected at all on a DIY platform.

If the administration costs are treated as the first part of FSCS compensation, then someone with £200,000 would receive a full settlement of £22,000 in FSCS compensation in respect of the administration costs and could additionally claim up to £28,000 in respect of bad advice.

When the FSCS limit goes up to £85,000, assuming an administration bill of the same 11% of assets under management (which got reduced by almost half in this case), DIY portfolios of £765,000 and less would be fully protected by the FSCS. Further, platforms must put aside money to pay for administration costs so there is some additional protection beyond the FSCS. I understand that, typically, this is around 5% of assets under management.

The limits in place therefore seem reasonable. It does not seem reasonable that all investors share the cost of bailing out investors with the largest portfolios, who of course have the option to hold their pension, ISA, and unwrapped investments with different providers, and split their investments between providers, such that they could safely hold a couple of million in assets under the current limits.

bowlhead99 · 1 July 2018 at 11:21AM

Aendryr wrote: »

Thank you for adding that. It was revised to £55m which is still by any standards extreme. The administration of Fyshe cost only £3m.

So what you're saying is, a £55m bill is an extreme number which you could have used in your post, but is not as headline catching as £100m so you used £100m for the purposes of marketing the petition, even though there has not been a £100m bill?

Yes, there is a long way to go, but I am optimistic that we will hit it.

I suppose you have to start somewhere.

It is in the interests of everybody to sign it as not doing anything about it would not be right.

Well, not really in the interests of everybody.

The proposal is not very clearly worded but seems to be that instead of administrators being allowed to be paid from client assets for the work done in returning the client assets held by an investment banking firm, and then FSCS stepping in to make good a qualifying individual investor's shortfall up to the compensation limit... you want the compensation limit to be raised to infinity per person so that all the costs which would cause a loss of client money would be borne directly by FSCS regardless of value, giving more protection.

FSCS does not currently cover all types of customer, and any increase to the valuue covered for individuals or for other types of person is a cost borne by the industry - banks, investment firms, insurance companies, advisors, who pay the levies. The reality is that those businesses will pass their extra 'compensation scheme running costs' on to their customers.

So, when you say, "It is in the interests of everybody to sign it", that's not really the case, because the vast majority of people using financial services (everyone in the country, to some extent) will find their financial services more expensive without ever really getting a benefit because they are unlikely to personally face an unrecovered loss under the current rules - especially when the limit for investment business goes up to the same level as deposit business which it's scheduled to do in a few months' time.

dunstonh · 1 July 2018 at 11:33AM

It is in the interests of everybody to sign it as not doing anything about it would not be right.

I'm not sure it is in the interests of everybody.

When you choose to invest money, you decide what risks you are going to take. Beaufort was not an investment platform or a mainstream investment fund. They focused on high risk, niche illiquid investments. Assets that could not be sold or transferred easily or quickly.

So, why should other mainstream investors pay more to get extra protection to cover those non-mainstream high-risk niche investors?

99% of the population use mainstream options. You are asking for extra protection for the 1% who appear to be after a safety net for the extra risks they are taking.

Alexland · 1 July 2018 at 11:58AM

I agree with bowlhead99 and dunstonh - why should the cost of operating mainstream investments increase to provide greater protection to those that make bad choices?

If extra protection is proposed the FSCS levy for operating high risk unconventional choices should increase so that mainstream investments become even more attractive.

Alex

grey_gym_sock · 1 July 2018 at 4:10PM

re beaufort: the revised plan from PWC has capped charges for the administration at £10k per investor, which will be fulled covered by the FSCS (with its current limit of £50k). the only exception is for investors not covered by the FSCS (which i thinks means some corporate customers).

this result may well be the result of campaigning on this issue by sharesoc and others.

i am finding it difficult on the basis of this to get myself worried about assets i hold over the FSCS limit with platforms who are both much more mainstream (not heavily involved in dodgier investments) than beaufort were, and much bigger.

Protect your ISA / SIPP - please sign this petition now

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