The firm, which is in administration, poorly advised people to transfer out of defined benefit (DB) pension schemes, including the British Steel Pension Scheme (BSPS), according to the regulator.

Arthur Cobill, an adviser at IFM, and William Hofstetter, one of its directors, have been banned from advising customers on pension transfers and pension opt outs.

Hofstetter has also been banned from holding any senior management function at a regulated firm.

Cobill and Hofstetter agreed to pay £120,000 and £40,000 respectively to the Financial Services Compensation Scheme (FSCS) to contribute to compensation for IFM’s customers.

The regulator said the firm operated a contingent charging model, which meant it only collected fees if customers transferred out of their DB pension schemes following the firm’s advice. This approach benefitted IFM, Hofstetter and Cobill but risked the long-term financial health and interests of their customers.

Customers transferring out of the BSPS were already in a ‘vulnerable position’ due to the uncertainty surrounding the scheme, the FCA noted.

Out of 307 IFM customers advised to transfer out of their DB pension scheme, 261 completed the process. Cobill advised 245 of those, including 198 members of the BSPS. Hofstetter was responsible for the compliance oversight.

Therese Chambers, joint executive director of enforcement and market oversight, said: ”Pensions are the safety net people spend their lives building. For many customers, their DB pension was their most valuable asset, and it was their only retirement provision other than their state pension.

“As experienced advisers, Mr Cobill and Mr Hofstetter, and IFM should have known better than to unravel this. It is only right that Mr Cobill and Mr Hofstetter contribute towards compensating those affected.”

Retail investors have statutory protections allowing them to seek compensation in certain cases via the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) under The Financial Services and Markets Act 2000.

However, under Link’s Scheme of Arrangement for investors affected by the collapse of the Woodford Equity Income fund (Weif), FSCS protections would be removed, though the scheme does not prevent creditors from bringing claims against a third party.

See also: Woodford investors granted single vote on Link redress scheme

The claims come ahead of the announcement of the High Court’s decision on whether to sanction the scheme of arrangement, expected to be published in early February.

Link’s compensation scheme has been approved by 93.7% by number and 96% by value of the 54,000-strong scheme creditors at a scheme meeting in December. The scheme is currently awaiting High Court approval before payments can be distributed to those affected.

Finance academics professor Steve Keen, professor Markus Krebsz, professor Andrew Clare, professor David Llewelyn and Dr Andy Schmulow penned an open letter to Justice Richards on 16 January highlighting the issue they see as a dangerous precedent.

They said: “We have no wish to become involved in Link or the merits of its proposed scheme. However, we are concerned the proposed scheme in its current form, if sanctioned, would forcibly denude affected investors of their statutory protections. This would occur many years after they had relied on boilerplate statements asserting the existence of those protections whilst making their investment decisions in good faith.

“Such a ruling, akin in effect to a removal of statutory projections under FSMA for approximately 300,000 retail investors, would be likely to set a dangerous precedent for the UK financial services market at large, thereby constituting a public interest case.

“In addition, sanctioning the above scheme could have grave, unintended consequences of increasing market volatility, diluting market participants’ trust and tarnishing the reputation of the UK financial services industry.”

Implications for wealth managers and IFAs

Transparency Task Force head of strategy Mark Bishop believes that waiving retail investors’ FSCS protections could have an adverse impact on wealth managers and independent financial advisers.

He told our sister publication Portfolio Adviser that any decision which strips investors of their statutory rights to seek compensation through FOS and FSCS could see firms effectively copying the process in the future, settling through a scheme of arrangement rather than the FSCS levy footing the bill.

“It effectively changes the game quite significantly in terms of what we understand about consumer protections in UK financial services,” he said. “If the scheme of arrangement is sanctioned by the court, it will set a precedent that means that other firms in the industry can go down the same route.

“In the medium term, it’s catastrophic for the industry. If the scheme of arrangement is passed, I would think that it would be incumbent on IFAs to write to people and say we put you into those funds because we said that they were FSCS protected. Those protections can no longer be relied upon, and you might want to consider reallocating your capital – a huge amount of work for no money.

See also: Chinese property sector woes continue to weigh on fund performance in January

“Secondly, for wealth managers, the position is even worse because they’ve made decisions for their clients and those decisions are going to look retrospectively dodgy. Of course, if those decisions included putting people into the Woodford Equity Income Fund, then actually the clients could come back to them and says, ‘You never told me that I can be deprived of my positive FSCS and FOS rights’.

“That would be a significant problem. There is a bigger problem as well for the industry as a whole, which is that if ever people are deprived of the statutory rights, they will tend to behave differently in the future. As a result, the Woodford Equity Income Fund had 300,000 direct investors that were trapped in it where it was gated, and another 240,000 who were invested in funds that invested in it. So 540,000 people were affected, and will be deprived of redress that they thought they were going to get.

“They’re going to tell their friends and at that point, there is a large number of people who are in the target market for financial advice, wealth management, and retail investment products, who now believe it’s safer to keep their money tied up in the family home or in a buy-to-let, or in deposit accounts and therefore don’t want to trade with the industry. That is very damaging if you are an industry participant.”

FCA’s alleged failures

The Transparency Task Force has been vocal throughout the Woodford saga on alleged failures by the FCA during the compensation process.

The group argues that the FCA is “desperate” to have the Woodford redress scheme approved, in order to protect the FSCS levy, following previous involvements with Link and its predecessor Capita Financial Managers in the handling of redress for investors in CF Arch Cru Investment and Diversified funds and Connaught Income Fund Series 1.

Bishop said: “We believe that the FCA, in 2017, placed itself in a position that resulted in it having to turn a blind eye to LFSL’s failings in its conduct as ACD of the Woodford Fund, in order to secure redress for Connaught investors that it hoped would take the reputational and political pressure off itself. And in doing so, as happened when it allowed the same firm to get away with no regulatory sanction for Arch Cru and Connaught, it simply caused a firm that was known to be defective to incur a still larger liability, further down the line.

“It is the apportionment of that loss that the Scheme of Arrangement seeks to deal with; it seeks to unfairly, irresponsibly, incorrectly and we argue unlawfully apportion that loss to the investors, and not where it should be – on the FSCS, and thereby, on the industry.”

He added: “It is therefore our hypothesis that the FCA was desperate to get the Scheme of Arrangement passed in order to avoid that liability falling to the FSCS, which would cause the industry – and especially the investment management sector – to ask difficult questions about how LFSL was able to buy its way out of regulatory sanction for Arch Cru and Connaught, and to be foisted on Woodford Investment Management; let alone the wider questions about how two individuals with colourful histories well known in the sector were able to achieve accelerated authorisation, or be authorised at all given their past conduct, and with minimal governance to keep them in check.”

The FCA was contacted regarding the claims, but our sister publication Portfolio Adviser did not receive a response in time for publication. Link Fund Solutions declined to comment.

This article was written for our sister title Portfolio Adviser

The UK, like many other global economies, is currently experiencing a period of unusually high interest rates. This situation presents both challenges and opportunities for savers and investors.

In this article, Andrew Waring director of intermediary at Stubben Edge Group & Akoni, explores the current state of high interest rates in the UK, predictions for future rate changes, and the strategic benefits of locking into higher rates now through fixed-rate financial products.

The current state of high interest rates

The recent hike in interest rates in the UK has been influenced by a combination of factors, including economic recovery post-pandemic, inflationary pressures, and political tension. As a result, The Bank of England has been adjusting its base rate as a tool to control inflation and stabilise the economy. The base rate currently stands at 5.25% (Bank of England, November 2023.)

However, this increase in the base rate has had a ripple effect across SWAP rates as well as various financial products, including savings accounts, mortgages and loans.

For savers, this environment presents an opportunity to earn higher returns on deposits, as banks and financial institutions are offering better interest rates on savings accounts and fixed-term deposits than have been seen in recent years.

This extends particularly to fixed-rate accounts. Interest rates are predicted to start decreasing in 2024, so by bagging a fixed rate now, your clients could reap the rewards of these high rates long after they stabilise.

Predictions for interest rate changes

Looking ahead, the trajectory of interest rates is subject to numerous influences, including economic growth, employment rates, and global economic conditions. Most financial analysts predict that the Bank of England will continue to increase rates in the short term to combat inflationary pressures. However, these rates are not expected to rise indefinitely.

There is a general consensus that once inflation is brought under control and economic growth stabilises, interest rates will plateau and eventually decrease. The timeline for these changes, however, remains uncertain but current predictions expect the decline will begin in mid-2024.

The impact of unstable SWAP rates

In recent times, the instability of SWAP rates has caused mortgage interest rates to increase considerably, meaning fixed-term mortgages haven’t been so appealing.

Now, SWAP rates have started to decline, meaning fixed-term mortgage rates are looking increasingly attractive to home buyers.

The case for locking into higher rates now

Given the current high-interest-rate environment and the uncertainty about future rate changes, there is a compelling argument for locking into higher rates now, especially for those looking for security and predictability in their returns.

Fixed-rate financial products, such as fixed-rate bonds or fixed-rate savings accounts, allow your clients to secure a high interest rate for a set period.

Here are some reasons why locking into a fixed rate account now could benefit your clients long term:

• Security and predictability: Fixed-rate products offer security against future interest rate drops. By locking in a rate now, your clients are guaranteed a fixed return for the duration of the term, regardless of market fluctuations.
• Planning and budgeting: Fixed-rate returns facilitate better financial planning and budgeting. Knowing exactly how much interest your clients will earn over a set period makes it easier to plan for future expenses and investments.
• Higher interest earnings: With current rates being comparatively high, locking into a fixed rate now could mean securing a higher return than what might be available in the near future, as rates stabilise or decrease.
• Diversification: For those with a diversified investment portfolio, fixed-rate products can add a stable, low-risk component, balancing out higher-risk investments.

Choosing the right fixed-rate product

If you’re working with a client who’s considering a fixed-rate product, it’s important to ensure the one chosen aligns with their financial goals and circumstances, as not all products are the same.

You might want to consider the following:

• Term length: Fixed-rate products typically range from one to five years. Longer terms often offer higher rates but require your clients to lock away their money for a longer period.
• Interest payments: Some products offer monthly interest payments, which can be beneficial if your clients rely on their savings for income. Others compound interest annually or at the end of the term, which can be more suitable for long-term savings goals.
• Minimum investment: Be aware of the minimum deposit requirements, which can vary significantly between products and institutions.
• Access to funds: Most fixed-rate products do not allow access to funds during the term without incurring a penalty. Ensure that your client can commit the funds for the entire term.
• FSCS protection: Ensure that your client’s savings are protected under the Financial Services Compensation Scheme (FSCS), which protects deposits up to £85,000 per financial institution.

The bottom line

The current high-interest-rate environment in the UK offers a unique opportunity for savers and investors. Locking into higher rates now through fixed-rate products can provide financial security, predictability and potentially higher returns.

However, it’s crucial to carefully consider your client’s personal financial situation and objectives when choosing the right product. As with any financial decision, staying informed and consulting with financial advisors can help you make the most of these high-interest-rate opportunities for your clients.

This article was written for International Adviser by Andrew Waring director of intermediary at Stubben Edge Group and Akonia.

According to the Financial Conduct Authority (FCA) register the firm has been in liquidation since April 2023.

Since October 2020 it has been unable to dispose of, deal with or diminish the value of any of its assets as well as cease pension transfer advice.

The FSCS told International Adviser that it has received eight claims so far that are pensions advice related.

With one being upheld and the rest still in progress.

To read more on this topic, visit: Holborn Assets under investigation by FSCS

It also told IA that it was aware the firm was associated with BSPS and it expects a number of claims to be related to the scheme.

However, until each claim is fully reviewed it cannot specifically say currently what they are related to.

The firm has also previously had the name BlueSky Agency Limited.

According to the FCA register Holborn Assets Ltd has been in liquidation since October 2023.

It has stopped taking on new business but is still required to meet FCA standards when dealing with its customers.

To read more on this topic, visit: UK firm fails relating to SIPPs

The FSCS told International Adviser that it believes there are likely to be a small number of claims from former clients for unsuitable advice in regard to pensions.

Inspirational Financial Management

The firm went into administration in November 2023 but the FSCS told IA that it was taking part in the FCA’s redress scheme for former BSPS members.

Therefore it expects to received a number of BSPS claims.

While the firm is still authorised by the FCA according to the register it is only authorised for specific activities and product types.