Advisers should not mistake Keydata the company and Keydata structured investments, writes Ian Lowes, founder of StructuredProductReview.com and managing director of Lowes Financial Management.
At the end of a recent conference on structured products a financial adviser stood up at the back of the audience and chastised the presenters because: “No-one has mentioned structured products were the reason Keydata went into administration”.
To hear this raised again coming up to four years on from the event itself illustrates just how negative impressions can be perpetuated.
The inference here is it was structured products that caused the failure of Keydata, which, of course, is simply not true.
The failure of Keydata is once more in the spotlight with the Financial Services Compensation Scheme’s recent court action to try to claw back from around 500 adviser firms £75m of the £400m levied for Keydata claims.
Consequently, it seemed pertinent to set the record straight once and for all. Keydata failed because the FSA discovered in retrospect that some of Keydata’s life settlement products were not eligible for ISA status and this created an unexpected tax liability for Keydata that the firm could not pay.
This was then followed by the revelation that the assets of one of their life settlement arrangements had been misappropriated by a third party and the other did not have sufficient liquid assets to provide the targeted returns.
Source of the problem
The Keydata structured products were not the problem – the issues all related to US life settlement-based plans – products from which Lowes has steered both its review service and its clients away.
In fact, while the furore around the tax situation and the investigations into the potential fraud were in the spotlight, the Keydata structured products were in the background working as they were structured to do.
Structured product, in effect, are contracts between the investor and the counterparty providing the securities (typically a bank), promoted by the plan manager (eg Keydata).
The contract specifies the return that the investor will receive at a set date given a defined market scenario – usually based on the performance of one or more indices. The failure of Keydata as the plan manager, therefore, had no effect on the structured investments as products.
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