Q: What happened?

A: On 5 April 2023, Stellar Asset Management Limited (“SAM”) was informed by BDO LLP, 55 Baker Street, London W1U 7EU that members of its firm had been appointed, on 4 April 2023, as joint Interim Managers (the “JIMs”) of WealthTek LLP (the “LLP”), pursuant to Regulation 7(1)(d) of the Investment Bank Special Administration Regulations 2011.

From 4 April 2023, the FCA imposed requirements for the LLP to immediately cease carrying on all regulated activities for which it has a Part 4A permission (other than where it has the express written consent of the FCA).

With effect from 6 April 2023, WealthTek LLP, trading as Vertem Asset Management and Malloch Melville, has been placed into Special Administration following an application to the High Court by the Financial Conduct Authority (‘FCA’).

Shane Crooks, Mark Shaw and Emma Sayers, licensed insolvency practitioners from BDO LLP, have been appointed as Joint Special Administrators (the ‘JSAs’).

The Special Administrators are now responsible for the affairs of the LLP.

The LLP remains regulated by the FCA, albeit certain restrictions are now in place to prevent the LLP (including under its other trading names) from undertaking any regulated activities.

The Joint Special Administrators are working closely with the FCA as they carry out their duties.

WealthTek LLP (“WealthTek”) was appointed by SAM to act as custodian and to provide related services for clients in relation to our AIM IHT Portfolio Service.

We have been advised by the JSAs that following the cessation of regulated activity, no trading can take place on any of the accounts, including purchases, sales, top-ups, or withdrawals.

Our priority is to work with the JSAs to ascertain the security of all client assets and ensure that management of the accounts can be re-established as soon as possible. We will ensure that we update all concerned parties as soon as we are able.

Please see the attached FAQ provided by the JSAs in relation to the change.

Q: What does special administration mean?

A: Special administration is a formal insolvency procedure that is used in cases where a business holds client money and is regulated by the Financial Conduct Authority (FCA).

This procedure is designed to protect the interests of the company’s customers and clients, and to ensure that the business’s assets are managed and distributed in an orderly and fair manner.

Administrators are appointed by the FCA and has the authority to take control of the business, assess its financial situation, and develop a plan for its future.

Q: Are my (client’s) assets secure?

A: The JSAs are currently conducting their review of the assets under WealthTek’s control including those invested via the Stellar AIM IHT Service.

Their priority, and ours, is to ascertain the security of all client assets and ensure that management of the accounts can be re-established as soon as possible.

We will update all stakeholders as soon as we have further information.

Q: Have I (my clients) lost money?

A: Until the JSAs have conducted their review of the assets under WealthTek’s control we are unable to provide any further details.

The FSCS has confirmed that, for eligible customers, the FSCS Compensation Scheme will be available (see further details below). Once the JSAs have distributed their final statements to clients and the Distribution Plan has been approved, we will be able to provide more guidance on what, if any, shortfalls exist.

Q: Is any client money held with Stellar Asset Management Ltd (“SAM”) directly?

A: No. SAM is not authorised to hold client money. SAM is the Discretionary Investment Manager for the service only.

WealthTek was appointed by SAM to act as custodian and to provide related services for clients in relation to our AIM IHT Portfolio Service including ISA Portfolio Service.

The depositary used by WealthTek for the custodian services was CACEIS Bank.

Q: How long will this process take?

In their update of 14 September 2023, BDO confirmed that they are very close to finishing their reconciliation of all clients’ assets at WealthTek, with legal opinion being sought on ensuring fair treatment for a small proportion of the monies identified which have unique circumstances.

The JSAs are not yet in a position to confirm when the application seeking approval of the Distribution Plan will be filed at Court although, based on current information, they anticipate that they will be in a position to make the application before the end of the calendar year, with an anticipated date for a Court hearing during the first quarter of 2024.

As soon as we have more definite information on the likely timeline from the JSAs, we will provide further guidance.

Q: What is the Distribution Plan and when will it be announced?

A: The Distribution Plan will set out how Client Assets will be returned to Clients and how the costs of the Special Administration will be allocated. Until the reconciliation of Client Assets has been substantially progressed, the JSAs are unable to provide details of the potential returns to individual Clients, or the timing of implementation of a Distribution Plan.

The Distribution Plan must be approved by both the Clients’ and Creditors’ Committee and the Court. In their update of 14 September 2023, the JSAs confirmed that they and their legal team are currently in the process of preparing the Distribution Plan for application to the Court. They anticipate that they will be able to make the application before the end of the calendar year, with an anticipated date for a Court hearing during the first quarter of 2024.

Q: Are my (client’s) investments covered by the Financial Services Compensation Scheme (FSCS)?

A: FSCS protects customers when authorised financial services firms fail. In the event that your (client’s) investment cannot be fully realised or transferred to another custodian, clients could be entitled to compensation of up to £85,000 per person.

FSCS has a webpage specifically for WealthTek related claims that they are regularly updating. On 14 September 2023, FSCS confirmed that, for customers who are eligible under FSCS rules, they are likely to meet any losses suffered in relation to the following;

  • the costs of returning client money to the customer and;
  • the costs of transferring any assets to a new broker – provided the particular assets are covered by FSCS’s rules.
  • client money shortfalls, that have occurred as a result of WealthTek not holding all the client money that it had undertaken to hold for that customer; and
  • client asset shortfalls that have occurred as a result of WealthTek not holding the client assets it had undertaken to hold for that customer.

Any compensation payable by FSCS is subject to the statutory cap of £85,000 per eligible customer, per firm.

FSCS are, along with SAM, one of the five members nominated to the Clients & Creditors committee and we are both working closely with the administrators to ensure we are able to update affected stakeholders as soon as possible.

Q: What will happen to the management of my (client’s) assets during this time?

A: Until the JSAs have conducted their review of WealthTek’s assets, SAM will be unable to make any changes to the portfolio. No management fees will be charged on client assets during this time.

Q: Will I receive any dividends declared and paid by investee AIM companies?

A: The JSAs have established a system for recording and reconciling cash receipts arising from the payment of any dividends. The funds related to such receipts will be distributed alongside and consistent with the distribution of the Custody Assets to which the receipts relate, and further details will be provided in the eventual Distribution Plan.

The Distribution Plan will set out how Client Assets will be returned to Clients and how the costs of the Special Administration will be allocated. Until the reconciliation of Client Assets has been substantially progressed, the JSAs are unable to provide details of the potential returns to individual Clients, or the timing of implementation of a Distribution Plan.

Q: Can clients access their investments held via WealthTek?

A: Client portfolios can be viewed using the SAM client portal. Access to the WealthTek portal will be unavailable from 10 May 2023.

Q: Can I withdraw my (client’s) funds?

A: No. The JSAs have frozen all assets with WealthTek until their review is complete. We are working closely with the JSAs and the FCA to ensure that this is resolved as quickly as possible.

Q: Will investment management or adviser fees still be deducted from portfolios held with WealthTek?

A: No. At the current time, no withdrawals or transfers of client money or assets are being processed to ensure that all clients are treated equally – this includes fees for the service.

SAM has not collected its management fees (due quarterly) since 1 January 2023 and SAM will not charge management fees whilst the portfolios are frozen.

Any ongoing adviser charging due since 1 January 2023 cannot be charged to portfolios and will be unable to be paid to authorised advisers until further notice.

Q: How do I access my (client’s) latest reports?

A: While the JSAs are conducting their review, there will be no further production of regulatory documents, including valuations, consolidated tax vouchers (CTVs), or costs & charges documentation.

Q: What was the outcome of JSAs report following their initial 8-week consultation period?

A: The full report issued by the JSAs can be found here. While the report gives some information relating to the overall picture at WealthTek, we do not have enough clarity to give specific information to our clients regarding the security of their assets.

We will continue to work closely with the JSAs to establish these details so we can communicate with all affected stakeholders.

Q: What proposals did the JSAs make with regards to next steps in administering the assets?

A: The full proposals issued by the JSAs can be found here. At the Initial Meeting hosted by BDO on 14 June 2023, our CEO, Jonathan Gain, was successfully voted on to the Client’s & Creditor’s Committee.

On 15 September 2023, BDO published a further statement in relation to their work as the Joint Special Administrators appointed in relation to WealthTek, the full statement can be found here.

Q: The JSAs initial report indicates a shortfall of assets, does this affect me (my client)?

A: While the initial report provides some information regarding the assets the JSAs have thus far reconciled, they have not yet completed their work therefore the true extent of any shortfall is unknown, nor do we know whether the shortfall affects SAM clients.

The report states that “any shortfall in Custody Assets is unlikely to be borne equally by all Clients; not all Clients will be exposed to those Custody Assets that have a shortfall, so it is therefore likely that the shortfalls will represent a higher burden on some clients than others.”

It is therefore vital that we establish the location and extent of the shortfall and how it affects SAM’s clients. We will continue working with the JSAs for greater clarity on this point.

Q: The JSAs initial report indicates difficulty in reconciling unit trust investments, does this affect me (my client)?

A: No. All of SAM’s WealthTek clients were invested in CREST-eligible equities only, which we believe to have been held by CACEIS in a pooled, segregated nominee company.

Q: Why did Stellar engage WealthTek LLP as custodian?

A: WealthTek’s custody solution provided several key benefits relative to both its previous custodian and other providers in the market, namely:

  • reduced costs for our investors:
    • a flat dealing fee,
    • a lower annual administration fee
  • significantly greater control of trade execution
  • enhanced client portal and portfolio analytics
  • improved system functionality and portfolio administration

The portfolio management software available to us on WealthTek is market-leading and has been a significant differentiator compared to other custody and platforms in the market.

WealthTek is/was authorised and regulated by the Financial Conduct Authority.

Q: Will this impact my (client’s) funds on platform (abrdn/M&G/Platform One/Transact)?

A: No, assets invested in the Stellar AIM Portfolio Service via platform are held via a completely different custodian. The AIM management team will continue to provide the same high quality management clients have experienced previously.

Q: What are the implications for Business Relief (BR) qualification during the Special Administration?

A: Qualifying AIM shares properly held in custody by CACEIS will continue to offer potential Business Relief. While client assets are frozen, we are unable to manage the portfolio which has implications in light of the following corporate actions:

21 April 2023 – Recommended takeover of Sureserve by “Cap10 4NetZero Bidco Limited” for 125p per share. There is no guarantee that the takeover will complete but, if it does, the cash return of 125p per share will no longer be BR qualifying unless and until it is reinvested in a new qualifying AIM holding and attracts Replacement Property Relief.

17 May 2023 – Breedon Group Plc moved to the main market segment of the London Stock Exchange and as a result is no longer BR qualifying. This was concurrent with a 1 for 5 share consolidation.

Q: Where can I find more information?

A: We will provide updates on meaningful developments. Customers can find more information about how they will be affected via:

This update is intended for use by financial intermediaries and clients who have invested in the Stellar AIM IHT Portfolio Service via WealthTek LLP. This document contains information provided by third parties, such as the JSAs, and no responsibility can be accepted by Stellar Asset Management Ltd for the accuracy of this information.

Stellar Asset Management Limited is authorised and regulated by the Financial Conduct Authority under FCA number 474710. Registered in England and Wales No. 06381679. Registered Office: 20 Chapel Street, Liverpool, L3 9AG.