Missed Target - The Cost of Failure

1941: Target for Tonight

Sadly I have heard that yet another IFA firm has gone into administration, this time from my old stomping ground in Bath. This was primarily due to the compensation claims levied against them for selling clients Keydata products. The compensation claims seem to have run to £6m. The firm concerned (Target Financial Management) was part of a group called Target Chartered Accountants and both have now gone into administration according to the financial press.

This is a very sorry tale - in January this year all IFAs were invoiced for the collapse of Keydata by the FSA to the tune of about £93m. This levy was applied to all adviser firms, irrespective of whether they had advised/arranged/sold Keydata products. So even firms like us, that didn't think Keydata were any good, were still caught up in the fiasco.

As we approach the deadline for RDR on 1st January 2013, IFAs will only be able to use the term "independent" if they genuinely consider the entire market of funds - duff ones and unregulated ones as well. The problem with this is that many IFAs are concerned that unless they sell these sort of products the regulator may withdraw their ability to use the term "independent". I can see many old problems reappearing. Even today the regulator has expressed grave concerns about "Life Settlement Funds" which they describe as "toxic" and having no benefit to investors - again nothing we have ever sold to clients, but undoubtedly will have to pick up the bill for those that have.

So contrary to the view that a "competitor" going bust would surely be welcome news - it really isn't.  Fewer advisers means the public have less choice and probably higher costs. Yes when mistakes are made redress should be made, but investors must also share the responsibility when things don't go well. Advisers should be better informed and clearly have the ability to investigate products more thoroughly, but investors must also ask questions. Clearly not enough questions were asked and few actually remembered the adage - if its too good to be true... it probably is.

The changes that are coming are likely to see more Accountant firms link up with IFA firms. This can work well, but as today's news from Bath highlights, one mistake can take the entire house down. So this should serve as a warning to those firms considering joint-ventures or attempting to operate in a field of expertise which they lack. Better each to his/her own. So if your Accountant is considering this, or you are an Accountant, please may I encourage you to learn from the mistakes of others like TCA and not repeat them, because I'm fed up of paying for the mistakes of others, particularly when I thought that the investments were daft.

DT