|Norwich & Peterborough massive mis-selling to customers|
Norwich & Peterborough Building Society apparently systematically mis-sold investments to hundreds, possibly thousands, of its customers, according to damning evidence that emerged this weekend.
The society will tomorrow receive letters from solicitors acting on behalf of 250 customers, demanding compensation for investment advice they received in N&P branches.
At the same time, a dossier containing evidence of what appears to be N&P’s repeated mis-selling of investments between 2006 and 2009 will go to the Financial Services Authority.
Victim: Retired Carol Scholes, 56, relied on Keydata for 90 per cent of her income. Her N&P branch in Wisbech advised her to put the sale proceeds of her business into a single bond
It is the biggest misselling scandal to engulf a mutual in decades, and with compensation likely to run into tens of millions of pounds poses a threat to N&P’s future.
The debacle has already led to calls from some of the 431,000 members for chief executive Matthew Bullock to be sacked and for a statement from chairman Gordon Horsfield.
The scandal is linked to last year’s collapse of Keydata, an investment company whose sophisticated bonds were sold by N&P.
Advisers at N&P sold 3,100 bonds to mainly older, risk-averse savers,collecting £3 million in commission.
But in a high proportion of cases, the advisers told customers to put most or all of their money into the bonds. The advisers also failed to spell out risks or disclose the commissions.
A complex sequence of events after Keydata’s collapse has left bondholders waiting to learn whether their holdings are worthless and whether the Financial Services
Compensation Scheme (FSCS) will step in to cover losses.
Financial Mail last week highlighted the case of Carol Scholes, 65, a retired grocery shop owner who had no experience of equity investments and a stated aversion to risk.
Her N&P branch in Wisbech, Cambridgeshire, advised her to put the sale proceeds of her business, a six figure sum, into a single bond.
Consequently, about 80 per cent of her life savings were with Keydata and she was also dependent on the bond to provide about 90 per cent of her retirement income. The sum invested was greater than the protection offered by the FSCS.
Since our report it has emerged that Carol’s case is far from exceptional.
West Midlands law firm Regulatory Legal represents 250 N&P Keydata investors but expects a further 300 to sign up soon.
It has used data laws to force N&P to hand over the documents relating to each bond sale, disclosing the notes made by N&P advisers during the sale process.
In 180 out of 207 cases Regulatory Legal has analysed so far, nearly nine in ten customers were advised to put all of their immediately available savings into a Keydata bond.
This suggests that far from offering ‘advice’, N&P advisers were simply selling the investment, regardless of savers’ needs. Regulatory Legal has also found that the 207 cases had on average 34 per cent of their total assets in Keydata.
But that was the average and 41 cases, or one in five, were in Carol’s position – in that more than half of their life savings had been put into Keydata.
About 98 per cent of the savers said that the risk of concentrating on one investment rather than spreading risk was not discussed during the sale while 90 per cent said that the risk of a third-party company getting into difficulties – as happened with Keydata – was not discussed either.
Regulatory Legal’s Gareth Fatchett reckons the size of his sample for the research is enough to give an accurate bigger picture. ‘It would be fantastically improbable if these cases were not representative of N&P’s advice overall,’ he says.
Hundreds of savers have complained direct but have been put off by N&P, which claims it cannot respond until the FSCS clarifies its position on Keydata and a related company, Lifemark.
Fatchett says that this is not good enough. ‘These investors’ complaints don’t relate to the solvency or otherwise of Keydata,’ he says.
‘These are complaints about N&P’s advice, which has exposed customers to excessive risk by putting huge proportions of their assets into a single, sophisticated investment.’
There is other evidence that the society has fobbed off anxious investors’ complaints, including a letter written by an N&P adviser in 2008.
Fatchett is holding a meeting in Norwich tomorrow that about 200 N&P investors have registered to attend and will answer their questions about how their cases will proceed.
Fatchett asked Bullock to be there but he declined.
Regulatory Legal’s typical work involves defending financial companies, rather than customers of those companies, but Fatchett says that in this case ‘the circumstances were so extreme’ and the ‘consumers’ case was so strong’ that the firm has decided to fight the action.
Regulatory Legal is operating on a no-win, no-fee basis but it will take ten per cent of any compensation won for consumers. N&P customers interested in attending tomorrow’s meeting or joining the action can find out more at keydatainvestorsgroup.co.uk.
Avoiding ‘over-concentration of assets’ – having too many eggs in one basket – is one of the cardinal rules of investment.
Chartered Financial Planner Derek Capelin of Capelin Financial Management in Solihull, West Midlands, says: ‘It’s thunderingly obvious and plain common sense but you have to say it again and again – diversify.Investors must diversify across types of investment and diversify across investment providers. You must never put a significant proportion of your total assets in any one place. And you must never exceed the FSCS limit.’
N&P has tried to discourage customers from using Regulatory Legal or other lawyers, arguing that they will incur unnecessary costs.
The society has pledged to ‘stand by its responsibilities in the case of any customers to whom Keydata products have been mis-sold and who have suffered a loss as a result’.
But N&P’s Bullock refused to answer many of Financial Mail’s questions. In a statement, the society insisted that its board had ‘fully and regularly assessed the potential impact of the Keydata situation.’
The statement went on: ‘To the extent that the society has any financial exposure to any customer in respect of Keydata products, the society is financially strong enough to absorb it.’