Who pays if your IFA goes bust?

Many people lost of a lot of money

Customers who have lost substantial amounts of money on "high income" bonds, recently faced a second blow.

The IFA they bought them from went into liquidation, making a compensation claim more difficult.

By Jennifer Clarke
BBC Radio 4's Money Box

More than 250,000 people invested £5bn in risky high income 'precipice' bonds.

Many have lost substantial amounts of money because of the disastrous performance of the stock market indices to which the bonds were linked, and they are seeking compensation from the company which sold them the product.

But customers who purchased bonds from one IFA - RJ Temple - are facing a double blow, as the firm itself has now gone bust.

It went into voluntary liquidation in July 2003.

According to the liquidators KPMG, one of the factors which led to its collapse was the large number of potential mis-selling claims stacking up against it, which it could not afford to pay.

Lighthouse cannot take, and would not take, responsibility for preceding mistakes Lighthouse Chief Executive Malcolm Streatfield

KPMG is now trying to establish the scale of RJ Temple's assets and liabilities so it can work out how much money can be paid to creditors. But there is a further twist.

Another company called the Lighthouse Group has bought some of RJ Temple's assets, including its 250,000 strong client list, and the right to hire its former advisors.

Lighthouse has set up a new company called Temple Financial Planning, which employs old RJ temple staff, advising old RJ Temple clients.

But Lighthouse Chief Executive Malcolm Streatfield denies that his company is responsible for any of RJ Temple's mis-selling liabilities.

He told Money Box that Lighthouse had not bought RJ Temple, merely some of its assets, and as such "cannot take, and would not take, responsibility for preceding mistakes".

And he said this was a condition of the deal. "We specifically [made clear] the fact that Lighthouse would take no responsibility for the any existing or future legal or financial obligations."

Compensation

Although Lighthouse says it has no responsibility to recompense customers, it is keen to point out that they do not lose their right to complain.

The liquidator becomes responsible for ensuring that complaints are dealt with properly.

The vast majority of those who are claiming against RJ Temple will get paid in full Senior KPMG Manager Ros Kitley

In turn KPMG is working closely with the Financial Services Compensation Scheme, which was set up to pay compensation to customers if they have a valid claim against a financial company which is no longer trading.

But there is a limit to how much money the FSCS can pay out.

Claimants get 100% of the first £30,000 they are owed, and then 90% of the next £20,000, to a maximum of £48,000.

Despite this cap, Senior KPMG Manager Ros Kitley is confident almost all customers will get the money they are owed.

"The Financial Services Compensation Scheme will in fact be paying out compensation to the maximum level of £48,000.

"The vast majority of those who are claiming against RJ Temple are well below that limit, and as a result they will get paid in full."

However, she did admit there are "a couple" of cases where the claim is for more than the maximum, and she acknowledges that these people "may not necessarily get paid in full".

Making a claim

Customers who think they have a mis-selling claim should contact KPMG in the first instance and it will then pass details of all claims to the FSCS for processing.

Once the FSCS has determined that a claim is valid, it will pay out compensation directly to the customer and then claim the money back from KPMG.

This means customers do not have to wait until the end of the liquidation process to get their compensation.

However Ros Kitley urges anyone who thinks they may have a mis-selling claim against RJ Temple to get in touch immediately.

"We would encourage people to get a claim in as soon as they possibly can, because the earlier they get their claim in, the quicker the process can be completed for them."

Customers should mark their correspondence for the attention of Ros Kitley or Tony Oakley and send it to:

RJ Temple Plc (In liquidation)
KPMG, 8 Salisbury Square
London
EC4Y 8BB

BBC Radio 4's Money Box was broadcast on Saturday, 18 October at 12:04 BST