Aegon Scot Eq Int ‘misled clients’

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Posted: Wed, 04/03/2009 - 15:04

Aegon Scot Eq Int ‘misled clients’
Thu, 26/02/2009 01

Aegon Scottish Equitable International (ASEI) has been accused by an adviser of publishing misleading literature for a cash deposit fund offered by Kaupthing Singer & Friedlander IOM (KSFIOM). This led to a failure to transfer £90,000 of his client’s assets out of the fund before the bank went into administration. The client asked for his cash, held through an ASEI bond, to be moved out of the account five days before KSFIOM closed its doors after becoming nervous about the bank’s stability. He followed ASEI’s procedures for making a transfer and was assured by telephone for five successive days that the transfer would be made, but the funds were not returned. ASEI eventually confessed that KSF had invoked its rights not to permit withdrawals but the adviser said he had not been informed through the bond’s literature, supplied by ASEI, that the bank could act in this way. “This was news to me, my client and his former IFA who had established the bond originally,” the adviser says. The client said he had obtained marketing information from ASEI detailing the individual terms for cash deposit funds his bond could access in May last year whilst he was with another adviser. He was happy with the terms and elected to invest around £300k into three different banking institutions, including £90k with Kaupthing Singer and Friedlander paying 6.95% interest on funds. The
comprehensive term sheet, issued by ASEI just before the deposit was made, detailed the specific rates from their chosen partners, the terms of investment and withdrawal and comprehensive ratings agencies’ assessments on each institution.

Information gap
ASEI had received terms from KSFIOM which stated: ‘Repayment from Fixed Term Deposit Accounts will normally only be permitted at the date of maturity of the fixed term deposit. The bank reserves the right to permit repayments of the whole or part of the fixed term deposit. The bank reserves the right to permit repayment of the whole or part of the fixed term deposit prior to
that date subject to the levying of a refunding change and/or such charges as it may deem appropriate.’
However, ASEI’s summary of this information, as published to IFAs and their clients, reads: “Breakage penalties on fixed rate bonds are 90 days interest on amount withdrawn. (Please Note: 90 days interest penalty applies regardless of how long monies have been invested - i.e. if you close account after two weeks, you will receive back less than your initial investment)”. The client comments: “The rather fundamental point about repayment only being permitted at maturity (unless the bank at their discretion agree otherwise) was omitted. “ASEI admits receiving the terms and conditions from KSFIOM and we have questioned them (ASEI) as to how it came about that an investment made on the understanding that breakage was permitted as of right, has been invested by ASEI on a basis which apparently allowed KSFIOM to avoid early breakage.”

Rate sheet concerns
In correspondence with the client and his current adviser, ASEI said the information it circulated, known as the rate sheet, “could not have been thought to have covered all of the terms and= conditions of any bank shown”. In response, the adviser says: “The rate sheet changed substantially two days after withdrawal was requested and we have concluded that they were probably unaware of their catastrophic misunderstanding of the terms until this happened.” His client adds: “ASEI is supposed to be a reputable company. It gets paid fees for running these offshore bonds and it is reasonable for its customers to assume it knows how to read and summarise simple terms and conditions accurately. It is disingenuous for it to suggest that its summary of the terms is anything other than wholly misleading. What has amazed me is it unwillingness to hold up its hands, admit its mistake and sort this out. What happened to treating its customers fairly?” The IFA says he has advised clients in the past to invest on the basis of the ASEI rate sheet and knew of no other terms and conditions that should have been considered or referred to. “Neither my clients nor I ever received any information that referred to the Banking Code after these accounts were opened. The only terms we both saw before and after the account was opened were on the rate sheet.”
The client’s previous IFA, who set up the bond originally, has also confirmed it knew of no reservation by KSF enabling it to avoid early breakage of fixed term deposits if they so chose, and held no additional information regarding the terms being offered.

Advisers frustrated
The adviser currently dealing with the case has been canvassing opinion from other IFAs on the issue. He said: “Everyone used the marketing data from ASEI as their sole source of diligence and no one was aware of any additional terms or had reason to suspect ASEI’s information might be wrong. ‘There is huge anger, worry and frustration at the way in which ASEI has cast them adrift. “I have uncovered a couple more depositors via ASEI who were in the process of withdrawal prior to ASEI’s collapse that have yet to receive funds. ‘The former rate sheets were woefully inadequate in their disclaimers and data, some of which was wrong. Information on compensation was lacking and generally the approach from ASEI in providing info was slap dash.’

Case to Ombudsman
The client and his current adviser have made a formal complaint to the Irish Ombudsman, because ASEI is a Dublin-registered company, and are awaiting judgement.
A spokesman for ASEI says: As this customer has a complaint at adjudication stage with the Irish Ombudsman, we cannot comment on his specific case. However, like many other product providers with customers affected by the extraordinary
circumstances surrounding the failure of Kaupthing Singer and Friedlander (Isle of Man), AEGON Scottish Equitable International is working hard to ensure the best interest of all our customers. “We have legal representation at proceedings in the Isle of Man and we will continue to push for a fair resolution which will end the uncertainty of our customers who have deposits in the bank.”
Professional Adviser is aware of the name of the client and his adviser but is not publishing these for confidentiality reasons, but they have both given their authority for the affair to be discussed.

Compensation delay
According to ASEI, 326 of its bond customers had deposits with Kaupthing Singer and Friedlander (Isle of Man) with total deposits around £54.5m. Depositors in KSF will face further delays in the lengthy process of getting their money returned after wrangling over the terms of the deal means a key decision on compensation has now been adjourned until April 9.

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