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Legalised theft of your PORTFOLIO

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ElectronicFur
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Legalised theft of your PORTFOLIO

#142281

Postby ElectronicFur » May 30th, 2018, 11:59 am

It is now clear that there is a major risk to our HYPs, and that is the legalised theft by administrators.

The Beaufort stockbroker case has highlighted that the investments I hold with brokers, that are supposed to be ring-fenced as per FCA CASS requirements, are not actually ring-fenced, and could eventually be taken by unscrupulous administrators charging extortionate fees. Basically this a form of legalised theft, and what is currently occurring makes a mockery of regulatory protections for investors in the UK. This is extremely worrying.

I urge all of you to write to your MPs, as what is currently happening to Beaufort clients could happen to any investor.

Sharesoc have provided the following template:

Dear [NAME OF MP],

I write to highlight my concerns over the special administration of Beaufort Securities, who were one of the largest private client stockbrokers in the UK regulated by the FCA. This case has broad and troubling implications for all UK investors in shares, including those held in ISAs and SIPPs. Over 14,000 clients are directly affected by this matter.

The administrators (PwC) have confirmed that the assets of Beaufort clients (shares and money) were ring-fenced as per FCA CASS requirements and were substantially complete apart from a few isolated deficiencies. Nevertheless, PWC has suggested that it may cost as much as £100 million over four years to wind up the company and return assets at the clients’ expense. Under growing pressure from clients, PwC has recently revised these estimates to £55 million over two years.

[INSERT YOUR OWN SITUATION HERE DETAILING HOW THIS HAS AFFECTED YOU OR WHY YOU ARE CONCERNED]

These estimates are totally disproportionate, given that they represent 10% of the approximately £550 million value of the ring-fenced client property held by Beaufort. Hundreds of clients may suffer substantial losses and hair-cuts, ring-fenced status notwithstanding.

By way of contrast, another broker, Fyshe Horton Finney, which had £300 million client assets was charged less than £3 million by its administrators (Harrisons) following its insolvency. It’s evident that PwC intends to treat this unfortunate incident as an opportunity to fleece 14,000 clients of £55,000,000!

There have apparently been 13 offers from third-party brokers to take over the client assets of Beaufort. A business transfer could resolve the matter quickly and at much lower cost, and such a solution has been used to good effect in previous broker failures.

Because this is a Special Administration under the very flawed 2011 Special Administration Rules, PwC can take its fees out of the client assets/funds held in “ring-fenced” nominee accounts - segregated accounts not available to be treated as assets of the failed business.

In just 2 months, PwC has already spent £6,000,000; That’s a run-rate of £3,000,000 per month to be funded from clients’ assets. There is a clear conflict of interest between the administrators’ duty of care in returning assets to clients in a timely fashion and their corporate motivation to generate fee income. It is very evident that PwC intends to treat this unfortunate incident as an opportunity to maximise its profits at the expense of Beaufort’s clients.

A review of any stockbroker’s terms and conditions shows that clients are not made aware that the cost of returning assets will be deducted from client assets and money in the case of broker insolvency. 14,000 clients invested their life-savings, including ISAs and SIPPs, through Beaufort under the reasonable assumption that ring-fencing provides an effective safeguard. The current debacle makes it clear that no investor is currently safe with any custody arrangement in the UK.

It is imperative that fairness prevails and these clients who entrusted the financial system with their hard-earned life savings have their asset and money holdings returned without cost or delay. The FSCS, which is funded by a levy on financial institutions, must cover any and all costs incurred in returning ‘ring-fenced’ assets to clients.

I request that you ask the FCA to address the following questions:

What led the FCA to appoint PwC, was there any form of competitive tender process and did they review and agree the extraordinary cost estimates?
Why have the offers of third party brokers to take over the client assets not been seriously considered?

I ask you urgently to raise this issue with the relevant ministers requesting a review and revision of the Special Administration Rules. The relevant rule is rule 135 of the Investment Bank Special Administration Rules (England and Wales) 2011 (Statutory Instrument 2011/1301).

I also request an enquiry into the conduct of the FCA in this matter, and whether they have acted in the best interest of investors.

Further information regarding this matter can be found here: https://www.sharesoc.org/campaigns/beau ... -campaign/

Yours sincerely

[YOUR NAME]


You can find details of the campaign ShareSoc are running on this topic here: https://www.sharesoc.org/campaigns/beau ... -campaign/

Raptor
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Re: Legalised theft of your PORTFOLIO

#142296

Postby Raptor » May 30th, 2018, 12:45 pm

Moderator Message:
This is off topic for HYP, othrt than HYPs are a collection of shares, this is not "Tight HYP". Moving from HYP Practical to a more relevant forum. Raptor.

dspp
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Re: Legalised theft of your PORTFOLIO

#142304

Postby dspp » May 30th, 2018, 1:04 pm

I fully agree, this is a very worrying instance.

Moderator Message:
Also this is the appropriate forum on TLF and you are most welcome to explain what is going on here. I have taken the liberty of amending your title as this does not only affect HYPers, it could be any portfolio.


regards, dspp

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Re: Legalised theft of your PORTFOLIO

#142308

Postby PinkDalek » May 30th, 2018, 1:14 pm

dspp wrote:I fully agree, this is a very worrying instance.

Also this is the appropriate forum on TLF and you are most welcome to explain what is going on here. ...

regards, dspp



For further background, see also:

Beaufort Securities 77ss 03 Mar 2018
viewtopic.php?p=121976#p121976

Which includes:

"Separately, the administrators have announced a bar date to begin the process of returning client money and client assets. A client portal https://dm.pwc.com/BeaufortClientClaims ... ientClaims is now available for clients to view their entitlements based on Beaufort’s books and records. Clients have until 8 June 2018 to confirm these details or, if they disagree, to submit their claim."


Safety of Client Funds by UncleEbenezer 30 Apr 2018
viewtopic.php?p=135668#p135668

dspp
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Re: Legalised theft of your PORTFOLIO

#142324

Postby dspp » May 30th, 2018, 2:21 pm

Moderator Message:
Thanks all for those links to some relevant threads. I will leave this as a separate thread for now, as there is a specific recommendation for folk to write to their MPs etc.

The safety of client funds thread goes at this from multiple angles (e.g. how many brokers, etc), so this is slightly different.
viewtopic.php?f=26&t=11456

The Beaufort thread is specific, whereas this is more general.
viewtopic.php?f=26&t=10418

However if things get muddled then we may well fold them all together. In general terms though please spread the message that folk need to take care out there.

regards, dspp

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Re: Legalised theft of your PORTFOLIO

#142401

Postby Alaric » May 30th, 2018, 7:10 pm

ElectronicFur quoting ShareSoc wrote:The FSCS, which is funded by a levy on financial institutions, must cover any and all costs incurred in returning ‘ring-fenced’ assets to clients.


I suspect that is the point. Individual clients will have their losses reimbursed by the FSCS. In effect then, the liquidators are raiding FSCS for their fees.

Was Beaufort really as major a player as claimed by ShareSoc?

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Re: Legalised theft of your PORTFOLIO

#142407

Postby PeterGray » May 30th, 2018, 8:22 pm

Only those with holdings small enough to be fully covered won't lose out!

And no, I wouldn't rate Beaufort as a major player. They also did a lot of the sorts of things that major players, and the brokers I use, don't do - they appear to have had a lot of holdings in unlisted securities (and as i understand it they recommended them to clients) and that, of course has a lot to do with how difficult the recovery is going to be.

That is not to criticise the Sharesoc campaign, I think it's something that almost all of us were ignorant of - that in case of a nominee broker failure your holdings might be partly at risk to cover the costs of sorting out the mess. And there seems to be little at present stopping ridiculous fees being charged by administrators.

But I don't think Beaufort was the sort of broker most of us use, and while the type of risk applies to all, the scale appears much greater with the nature of the Beaufort operation, and the type of holdings many of their customers held.

Peter

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Re: Legalised theft of your PORTFOLIO

#142424

Postby Alaric » May 30th, 2018, 9:22 pm

PeterGray wrote:Only those with holdings small enough to be fully covered won't lose out!


The administrators are "only" helping themselves to a proportion of the assets. So if say, they walked off with 10%, an investor with up to £ 500,000 would be covered.

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Re: Legalised theft of your PORTFOLIO

#142493

Postby PeterGray » May 31st, 2018, 9:55 am

You are quite right, Alaric,

I had been thinking of it as limited to investment size, but it is, of course, based on limits to the size of compensation.

So as you say, due to the remarkable generosity of the administrators cutting their estimated remuneration from 20% to a mere 10%, investors with up to £500k should be covered!

Peter

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Re: Legalised theft of your PORTFOLIO

#143115

Postby GeoffF100 » June 2nd, 2018, 7:32 pm


Alaric
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Re: Legalised theft of your PORTFOLIO

#143142

Postby Alaric » June 2nd, 2018, 11:14 pm

GeoffF100 wrote:Here is a statement from the FCA:


It rather confirms that if you suspect your Broker is dodgy, you are better off holding assets on paper or Crest. Not however an option if the assets are tax sheltered as ISAs or SIPPs.

ElectronicFur
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Re: Legalised theft of your PORTFOLIO

#143150

Postby ElectronicFur » June 3rd, 2018, 12:52 am

Alaric wrote:
PeterGray wrote:Only those with holdings small enough to be fully covered won't lose out!


The administrators are "only" helping themselves to a proportion of the assets. So if say, they walked off with 10%, an investor with up to £ 500,000 would be covered.


Where do you get the £500k figure from? Only investors with less than £50k will be fully protected by the FSCS scheme, as that is it's compensation limit.

Shockingly PwC themselves have said that they estimated around 700 clients with client money and client assets together valued in excess of approximately £150,000 "may experience a loss on their entitlements in excess of the FSCS’s £50,000 compensation limit".

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Re: Legalised theft of your PORTFOLIO

#143151

Postby mc2fool » June 3rd, 2018, 1:42 am

ElectronicFur wrote:
Alaric wrote:The administrators are "only" helping themselves to a proportion of the assets. So if say, they walked off with 10%, an investor with up to £ 500,000 would be covered.

Where do you get the £500k figure from? Only investors with less than £50k will be fully protected by the FSCS scheme, as that is it's compensation limit.

The FSCS covers up to £50k of losses, not just holdings of £50k. If you have (had) £500k and you get back £450k (90%) then the FSCS will cover the £50k loss. If, OTOH, you only get back, say, £420k then the FSCS will only cover £50k of the loss leaving you with a final shortfall of £30k.

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Re: Legalised theft of your PORTFOLIO

#143163

Postby GeoffF100 » June 3rd, 2018, 7:17 am

ElectronicFur wrote:Shockingly PwC themselves have said that they estimated around 700 clients with client money and client assets together valued in excess of approximately £150,000 "may experience a loss on their entitlements in excess of the FSCS’s £50,000 compensation limit".

That was before PwC halved their estimate of their costs. Some of these clients will also have worthless investments, and they will take a loss on these. A second (up to) £50K of compensation is available for clients who were misadvised when they bought these investments.

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Re: Legalised theft of your PORTFOLIO

#143164

Postby Dod101 » June 3rd, 2018, 8:01 am

All of this is one reason why I do not hold a trading account with a broker. No point in adding to my exposure when I do not have to. I think I have also decided not to transfer any more certificated holdings into an ISA or trading account but of course I need to be sure that these are very much my LTBH holdings. Paying tax on some of the income derived is just too bad but is a cost for that security (at least until dematerialisation comes)
It is also an argument for spreading your ISAs around between brokers although as I know it adds a layer of inconvenience.

Dood

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Re: Legalised theft of your PORTFOLIO

#143166

Postby GeoffF100 » June 3rd, 2018, 8:20 am

The FCA document states:

"Yes, the FSCS will cover shortfalls in client money or assets for eligible clients up to £50,000. Generally, all Beaufort clients who are individuals are eligible. In relation to BACSL, these losses may include amounts caused by the administrators’ costs in returning client money or assets. The administrators have estimated that more than 90% of eligible clients who have client money and/or assets with BACSL are likely to have losses which fall under this £50,000 limit."

The nub of the problem here is that the dodgy investments do not have any value as ready cash to fund the administration. That money can only come from the listed investments.

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Re: Legalised theft of your PORTFOLIO

#143179

Postby paulnumbers » June 3rd, 2018, 9:53 am

mc2fool wrote:
ElectronicFur wrote:
Alaric wrote:The administrators are "only" helping themselves to a proportion of the assets. So if say, they walked off with 10%, an investor with up to £ 500,000 would be covered.

Where do you get the £500k figure from? Only investors with less than £50k will be fully protected by the FSCS scheme, as that is it's compensation limit.

The FSCS covers up to £50k of losses, not just holdings of £50k. If you have (had) £500k and you get back £450k (90%) then the FSCS will cover the £50k loss. If, OTOH, you only get back, say, £420k then the FSCS will only cover £50k of the loss leaving you with a final shortfall of £30k.


Are you sure about this? This was never my understanding.

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Re: Legalised theft of your PORTFOLIO

#143180

Postby PeterGray » June 3rd, 2018, 9:57 am

The nub of the problem here is that the dodgy investments do not have any value as ready cash to fund the administration. That money can only come from the listed investments.

This is indeed a large part of the problem with Beaufort - that it appears that a large part of the problem arises from the nature of the investments they encouraged or allowed their customers to invest in.

While it clearly doesn't avoid all possible problems of this sort, if you invest in a larger mainstream nominee broker you are unlikely to be hit in the way that Beaufort customers are being.

Peter

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Re: Legalised theft of your PORTFOLIO

#143182

Postby Dod101 » June 3rd, 2018, 10:00 am

paulnumbers wrote:
mc2fool wrote:
ElectronicFur wrote:Where do you get the £500k figure from? Only investors with less than £50k will be fully protected by the FSCS scheme, as that is it's compensation limit.

The FSCS covers up to £50k of losses, not just holdings of £50k. If you have (had) £500k and you get back £450k (90%) then the FSCS will cover the £50k loss. If, OTOH, you only get back, say, £420k then the FSCS will only cover £50k of the loss leaving you with a final shortfall of £30k.


Are you sure about this? This was never my understanding.


That is what an article in the Sunday Times says this morning. It is losses not the amount you have at risk.

Coming back to my original point if you have a substantial ISA built up over many years you could have say half a million or more tied up with one broker. Would you place that amount of money with one bank? A bit frightening really.

Dod

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Re: Legalised theft of your PORTFOLIO

#143189

Postby tjh290633 » June 3rd, 2018, 10:10 am

It may be worth pointing out that Beaufort took over City Equities clientele. Many of those have been compensated for being mis-sold their shares already. Are they due for a second dose of compensation just for having been moved to Beaufort?

CE clients held their shares as sponsored members of Crest. How did they hold them once Beaufort took over?.

The administrators have been sorting out the sheep from the goats. It looks like a messy situation.

TJH


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