According to the administrators, PwC, Beaufort holds around £500m of client’s securities and another £50m in segregated client money. There’s no suggestion that any investor money has gone missing, so in theory there shouldn’t be any problem getting 14,000 investors their assets back – even if that may take some time, and will mean the cost of lost opportunity.
So, aside from that irritating inconvenience, what exactly is the problem? The answer is that even though all the money is where it should be, and the records of who owns what are in place, there may still not be enough in the pot to give everyone their shares back. 700 clients with assets valued at over £150,000 could find themselves nursing as much as a 40 per cent loss of their portfolio.
How, given the assets are ring-fenced, is that possible? Look no further than the cost of the administrator: PwC has said that its fees will be in the region of £100m, and that legal precedents mean it can dip into client assets to pay itself and other advisers involved in the administration.
For one thing, that does seem an extraordinarily high figure in the context of the overall amount of funds to be returned. Our reader suggests that the cost of simply transferring ring-fenced nominee accounts to another provider should be much lower, a point also made by ShareSoc, which is mounting a campaign to present a legal challenge to the administrator’s proposals. “[PwC has] provided no justification of either the amount or timeframe for the simple task of transferring an electronic registry of client assets/money to one or more replacement brokers,” it argues.
More worrying is what this means for the idea of ring-fencing – in short, it suggests a principle not worth the reams of legal paper it’s printed on, a point made by the excellent FT columnist Lord Lee in Parliament, and reiterated by ShareSoc, which says that “the suggestion that PWC as Special Administrator can seize client property and treat the owners as creditors of the failed entity makes a mockery of regulatory protections for investors in the UK”. I fully concur and urge those affected to sign up to ShareSoc’s campaign (https://www.sharesoc.org/campaigns/beaufort-client-campaign/).
I would add one further point: in an age where we are increasingly expected to take control of funding our own retirement, the UK’s investor compensation scheme is simply no longer fit for purpose. We regularly see pension investments in our portfolio clinic worth over the £50,000 compensation limit, and spreading them across providers is utterly impractical. By contrast, the equivalent US scheme protects assets worth up to $500,000 – and if the UK government is serious about promoting self-directed retirement saving, it should do the same.
