The Keydata saga was further complicated this week as a row broke out between Norwich & Peterborough and the FOS over the sales of Keydata plans through the building society.
FOS' preliminary ruling states flaws in the building society's advice exposed an elderly couple's capital to "an inappropriate level of risk" and it ordered N&P to pay £28,000 compensation.
However, N&P CEO Matthew Bullock hit back, defending his advisers' analysis of Lifemark as "a very stable product".
The building society intends to appeal the FOS ruling and hopes the FSA and Financial Services Compensation Scheme (FSCS) will take over the claim as part of its "wider implications" mandate for cases where many parties are similarly affected.
N&P should not expect thanks from investors for passing the buck. It was obviously having second thoughts about Keydata's trustworthiness as early as 2006 when it wrote to investors with concerns about the clarity of the provider's marketing material.
But Bullock does make an important point: FOS is confusing risk with complexity.
FOS says mis-selling occurred because it is "unlikely" the couple would have been willing to accept the risks inherent in the Keydata Income Plan at their stage of life.
The "risks" the FOS is talking about - retrospectively - are really only one. The risk of the total failure of the underlying funds, run in this case by Lifemark.
Ultra-cautious UK cash depositors faced exactly the same risk when they put their money in Icesave or Northern Rock accounts.
But you can bet the farm their bank managers didn't mention that risk to them, because like with Luxembourg-listed Lifemark, no-one expected such large institutions with their strong track records to fail.
The Treasury Select Committee has said Northern Rock failed because of its "reckless" business plan, adding the FSA is guilty of a "systematic failure of duty" for not spotting the looming crisis.
In short, banks' deposit accounts are only the safest place to put your money as long as the bank manager knows what he is doing and the regulator is watching to make sure he does.
Lifemark investors are currently at risk of losing their capital, having already lost their coupon payments, because the relationship between Lifemark's long-term value and short-term liquidity needs has been fractured for years by mis-management, uncurbed by the FSA.
Individual cases of mis-selling aside, N&P IFAs could not have known of this risk when they advised customers to buy into the fund.
The fund's administrator, KPMG's Eric Collard, says Lifemark needs between $20m and $30m to stave off the threat of liquidation permanently, which could be paid back with interest when the life-settlement polices mature. This is money which would be available now if Lifemark had been managed properly.
As Bullock says: "Just because you advise somebody and the product fails doesn't mean to say you have mis-sold it."
In the same way just because a company is listed on a reputable stock exchange by an FSA-regulated person apparently doesn't mean it is protected from failure.
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