gravygraham
Active member
Me again. What documentary evidence can a broker supply to a prospective purchaser (ok, its me) to prove that they've got a pukka Clients Account?
Broker's Client Accounts
- Thread starter gravygraham
- Start date
Whitelighter
Active member
There is no such thing as a 'pukka' client account for brokers. In that it isn't bonded and not recognised as legally separate from the companies other assets (unlike solicitors which have a specific legal structure.
At best it will just be an account named 'client account' but in the event that it all goes tits up it doesn't guarantee a liquidator wouldn't just see it (justifiably) as part of the companies assets.
At best it will just be an account named 'client account' but in the event that it all goes tits up it doesn't guarantee a liquidator wouldn't just see it (justifiably) as part of the companies assets.
SailorBill
New member
A letter from their bank saying so?
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SailorBill
New member
Are you saying that even if it's called ABC Brokers Client Account then the money deposited there is not ring fenced? I find that odd.
Whitelighter
Active member
Our notion of client accounts comes from solicitors - but these are very specific legal entities where the client accounts are legally recognised, bonded and indeed a requirement to operate.
Brokers are just companies providing a service. They can call the account whatever they like but it doesn't have any special status. It's a good idea to do so as it keeps things easy from an accounting point of view but at the end of the day it's just a company account - you might as well call it 'banana mud pie fighting fund account 12' for all the status it gets.
Brokers are just companies providing a service. They can call the account whatever they like but it doesn't have any special status. It's a good idea to do so as it keeps things easy from an accounting point of view but at the end of the day it's just a company account - you might as well call it 'banana mud pie fighting fund account 12' for all the status it gets.
Reverend Ludd
New member
Tranona
Well-known member
That is just not true.
Look on the YDSA site for a definition of how the account should be set up. It needs to be written in Trust and the bank needs to know this. Payments are made into the named account and the client should ask for a receipt. Case law - most recently the Opal Marine case is based on a trust being created to ensure that the money remains the clients and following this process ensures that a trust is created. This does not of course prevent a broker from stealing from the account as he is the signatory, but the funds remain legally the client's.
It is no different from a solicitors "clent account" except that a solicitor is backed by a Law Society compensation scheme which takes over responsibility if the solicitor breaks the trust and steals money. AFAIK there are no examples of a broker stealing from a client account, but there are plenty of examples of solicitors stealing money from clients.
So, please get your facts right rather than fabricate your own account of what goes on.
Tranona
Well-known member
You have it in one.
It is, if the account is set up properly - see my explanation above.
jonic
Well-known member
Brokers who are members of the Association of Brokers and Yacht Agents (ABYA) are governed by the ABYA Code of Practice. The Code requires brokers to have a Client Account, separate to their day to day trading accounts, where deposits are held. The broker will have a letter from his bank stating the status of the account. This should ensure the funds cannot be taken into account by insolvency practitioners in the case of the company folding nor used by the broker for his day to day funding.
I operate a client account held in trust at Lloyds TSB.
From the Lloyds website
"Clients' Call Account
Suitable for any professional practice or other business that holds money for its clients, for example: solicitors, accountants, insurance brokers, estate and managing agents."
To set up one of these accounts the broker must sign a declaration similar to the one below.
We give you notice that:
a) all money standing to the credit of the above account
is held by us as trustee (or, in respect of investment
business carried on in Scotland, as agent);
b) you are not entitled to combine this account with
any other account or to exercise any right of set-off or
counter claim against money in this account in respect
of any sum owed to you on any other account of ours;
c) interest earned on balances in the above account shall
be credited to the above account, or to an account of
that type, and
d) the title of the above account sufficiently distinguishes
the account any account containing money that
belongs to us, and is in the form requested by us.
2 We will comply with the Rules (including in particular,
the Rules relating to clients' money) of the Financial Services
Authority (if applicable) or any Recognised Professional Body
(RPB) 01 which we are a member. We therefore take
responsibility for ensuring that any transaction which falls
within the terms of our mandate to you is in accordance with
any applicable rules of the FSA or any RPB.
You should be able to ask the broker for a copy of his agreement with the bank, or a letter from the bank stating the account is in place and monies are separate from the brokers business.
The monies can be lost if the Broker commits fraud and steals them because there is not an insurance bond backing the funds. So if the broker were to steal the funds or use them inappropriately you would have to sue. However compared to the number of accountants and solicitors who misappropriate funds this is extremely rare.
The above refers to brokers who are handling monies for a straight forward brokerage deal- i.e a used boat on behalf of a client.
Dealers who are selling new boats on behalf of a factory will have other agreements in place regrading stage payments and ownership of part built hulls, and these vary. But again you should ask to see any arrangements in writing.
I operate a client account held in trust at Lloyds TSB.
From the Lloyds website
"Clients' Call Account
Suitable for any professional practice or other business that holds money for its clients, for example: solicitors, accountants, insurance brokers, estate and managing agents."
To set up one of these accounts the broker must sign a declaration similar to the one below.
We give you notice that:
a) all money standing to the credit of the above account
is held by us as trustee (or, in respect of investment
business carried on in Scotland, as agent);
b) you are not entitled to combine this account with
any other account or to exercise any right of set-off or
counter claim against money in this account in respect
of any sum owed to you on any other account of ours;
c) interest earned on balances in the above account shall
be credited to the above account, or to an account of
that type, and
d) the title of the above account sufficiently distinguishes
the account any account containing money that
belongs to us, and is in the form requested by us.
2 We will comply with the Rules (including in particular,
the Rules relating to clients' money) of the Financial Services
Authority (if applicable) or any Recognised Professional Body
(RPB) 01 which we are a member. We therefore take
responsibility for ensuring that any transaction which falls
within the terms of our mandate to you is in accordance with
any applicable rules of the FSA or any RPB.
You should be able to ask the broker for a copy of his agreement with the bank, or a letter from the bank stating the account is in place and monies are separate from the brokers business.
The monies can be lost if the Broker commits fraud and steals them because there is not an insurance bond backing the funds. So if the broker were to steal the funds or use them inappropriately you would have to sue. However compared to the number of accountants and solicitors who misappropriate funds this is extremely rare.
The above refers to brokers who are handling monies for a straight forward brokerage deal- i.e a used boat on behalf of a client.
Dealers who are selling new boats on behalf of a factory will have other agreements in place regrading stage payments and ownership of part built hulls, and these vary. But again you should ask to see any arrangements in writing.
gravygraham
Active member
Hmm, this is the nub of it.
So how do most peeps go about it then? Get the funds electronically transferred and then hope the boat is still in the broker's yard/pontoon when you pitch up to collect it?
Trouble is, suspicious ol' me wants the keys in me sweaty palms within minutes of the readies disappearing from my account. Having said that, I am painfully aware of the delays some electronic transfers can experience.
jimmy_the_builder
Well-known member
When I bought my current boat, I did three things to reduce my risk:
- minimise the deposit. I can't remember the exact number, but I think it was 5k
- get transparency about any debt secured on the vessel, and then make sure that debt was cleared before I paid the balance of the purchase price
- minimise the time between me paying for the boat, and taking possession, which in my case was about 20 minutes
This was a purchase from Essex Boatyards, and they were excellent throughout the whole process.
On a previous purchase, three or four boats ago, I again paid a small deposit. This time however there was a mortgage on the boat that the seller couldn't clear without my funds - so having established the existence of the mortgage, I settled this directly with the lender, and then just paid the balance to the broker. Again, this worked well, although I was particularly wary because I had credit checked the broker and the experian report came back 'maximum risk'...
Cheers
Jimmy
jonic
Well-known member
You are using a registered broker, with a written in trust client account, and a legal sale and purchase contract in order to safeguard your money - so the owner of the boat cannot get his hands on your money until you have the legal title documents, Bill of Sale and the keys to the boat.
Ensure there is a proper sale and purchase contract before paying over the money, check the broker is registered and if necessary get some references.
If the broker is honest and set up properly you have nothing to worry about.
If you do think he may be setting you up to steal your cash pay a solicitor to do exactly what the broker is doing. He won't mind and the solicitor will be pleased to take the fee. You will then have extra piece of mind.
I suspect this thread will soon drift off into the usual hysteria.
jonic
Well-known member
Yes. In 99% of cases it is electronic transfer. Everyone has an audit trail and it is usually all complete within 24hrs.
Extract from a sale and purchase contract.
"The Purchaser shall tender the balance of the purchase price to the Brokers who on receipt of the balance of the purchase price will hold the documents referred to in this Clause to the order of the Purchaser.
NOTE: Where payment is made by cheque, Bankers draft, letter of credit or other instrument, the terms of this Agreement shall not be deemed to have been fulfilled until such payment is cleared into the Client Account whereupon completion shall be deemed to have taken place providing all other documentation has been completed. Electronic transfer is the recommended means of payment being the most secure and quickest method."
Interestingly if you attempted to pay me in cash I am bound by law to report you to HMRC!
Check with ABYA to see if the broker is a current registered member and ask to see his PI insurance certificate and trust agreement with the bank. If it all checks out you should be fine.
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Nautical
Active member
Or go to your friendly lawyer and ask to use an an escrow account held by his firm. Money goes in, documents are lodged by other side, lawyer does the transaction, obviously a bit more complicated than that as there has to be a full sales contract, an escrow contract and terms within but thats the gist. No one can really commit fraud as everything has to follow an agreed proceedure previously signed and agreed by all, even the lawyer can't do anything apart from the exact terms of the agreement (well he could but then he is committing blatant fraud so you would be covered by the legal professions compensation scheme). obviously all Pre due diligence has to be done, evidenced and lodged, free of encumbrance etc. As close as you can get security wise but not always the cheapest solution, works if the numbers warrant it (or you want belt and braces anyway) .
jonic
Well-known member
Which apart from the law society compensation scheme is exactly what the broker is trained for, does and has been paid to do
All of our contracts and documents are legally binding documents that are drawn up by specialist lawyers that follow an agreed procedure.
Due diligence is completed in the form of mortgage checks, title checks, RCD and vat evidence checks.
Monies are held in trust at designated client accounts.
Title is passed over free of encumbrance via the s&p contract and the Bill of Sale.
The broker settles outstanding marina bills and finance.
The broker only disburses final monies and exchanges title when all steps have been correctly completed and documented.
That is what a broker is for in addition to the sales and marketing.
The only reason to add a lawyer- who unless he is a marine specialist will probably know less than the broker- is if you think the broker is incompetent or fraudulent.
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DAKA
Well-known member
Technically flawless explanation, 100% true.
As a fingers crossed hear no evil speak no evil, then it is true to say some Brokers will try to protect cash in a clients account, the money directed into the actual clients account may have extra protection but unlike a Solicitor or an Insurance Broker the Yacht Broker is able to 'borrow' from the clients account , as long as at the time of borrowing he intends to pay it back he hasnt broken any law. This is exactly what BA Peters did and were encouraged to do by Barclays Bank.
See here for full details
The following is a copy paste of my post highlighting the issues just over a year ago when BA Peters case notes were made available, since this post some amendments to Yacht Brokers Association guidelines have been made but there are not any new laws or any reason why the BA Peters case couldnt be repeated.
Background
When Opal Peters went bust not all clients were compensated in full.
Barclays Bank had set up an automatic transfer to sweep funds from the clients account to offset against the £5.5m overdraft.
This effectively meant that any client paying £100 000 for a boat in the morning may find that by close of business that evening £90 000 or more has automatically been transferred to credit the £5.5m overdraft.
Staff at Opal Peters were aware of financial issues and tried to protect clients funds in the so called clients account but they found that just calling an account a clients account does not automatically protect it.
I have now split my post into two sections, one being relevant to Brokers, suggesting what they can do now by getting in touch with their bank this afternoon and what individuals can do before they hand cash across or agree to allow a Broker to hold funds for a boat being sold.
Brokers
Many high street banks at local level simply do not understand the complexities of a clients account, they see a large chunk of cash and believe they have a right to it, they will encourage you to borrow the funds to offset any overdraft/loan you may have. One of the ways they do this is to set up a second account running in tandem that is constantly overdrawn. This seriously compromises the protection of the trust.
Write to your Bank asking them to confirm in writing
That they acknowledge receipt of your letter dated ****** regarding account number *********, called ************* clients account. In accordance with your instructions they recognise this account as a client account and they agree that they are not entitled to combine the account with any other account, nor are they allowed to offset, make any charge, encumbrance, lien or take compensation, or any retention what so ever from this account.
The Bank agrees that they can not take any charge,encumbrance, right of set-off,lien, compensation or retention, against any approved assets held for the clients account.
TSB Lloyds have an account specifically designed for use as a clients account which is charge free and will be able to set an account up for you if your current bank will not cooperate.
Individuals
Dont become a Brokers Mark, ask them to confirm in writing that your money will be treated as money held in trust and ask for a letter from their bank which should read
That they acknowledge receipt of your letter dated ****** regarding account number *********, called ************* clients account.
**********Bank confirms that they recognise this account as a client account and they agree that they are not entitled to combine the account with any other account, nor are they allowed to offset, make any charge, encumbrance, lien or take compensation, or any retention what so ever from this account.
******** Bank agrees that they can not take any charge,encumbrance, right of set-off,lien, compensation or retention, against any approved assets held for the clients account.
Or if you have a significant sum at risk ask for a dedicated trust account to be opened in accordance with the above conditions.
The remainder of this post isn't really worth reading, its only added to give substance to this post with a case study and case history.
BAP Case history
http://redirectingat.com/?id=635X493...p?t=253452
Copy paste here for anyone who cant be bothered to read the judgement.
Quote
BAP had an overdraft facility provided by Barclays Bank (the Bank) of £5.5
million. There was also a current account and a client account. BAP normally
paid deposits and part payments on direct sales into the current account but
its policy was to pay deposits received on brokerage contracts into the client
account. Until early June 2007, the client account was 'swept' every week,
with an automated transfer of all funds in that account in excess of £10,000 to the current account. BAP's overdraft position was worked out by reference to the net amount due after allowing for the credit on the client account.
Accordingly, deposits paid into the client account did not necessarily remain
in that account.
The last automated transfer from the client account to the office account took
place on 5 June 2007. According to the evidence of one of the directors of
BAP, the policy from that date was to pay all deposits, whether for direct or
brokerage sales, into the client account, in view of BAP's uncertain financial
position.
end quote
Unlike a solicitors clients account there isn't currently a compensation scheme in place to cover a Yacht Brokers account.
The BMF, RYA, YDSA are turning a blind eye to the 'tandem overdraft account' situation which could be leaving so called clients accounts near worthless as the judge quoted in the opalpeters case
James Roscoe (Bolton) Limited -v- Winder [1915] 1
Barclays automatically empted the clients account once a week for BAP to 'Borrow'.(less £10k)
Once cash was 'Borrowed' wouldnt you expect Barclays should have known that BAP wasnt allowed to pay it back in ?
In my opinion many well known high street banks are not capable of setting up and looking after 'clients accounts'.
Its a shame these short comings that clearly put clients funds at serious risk aren't recognised by marine organisations.
Quote
the claim to beneficial ownership of money in a bank account
requires the continued existence of the money either as a separate fund,
or as part of a mixed fund, or as latent in property acquired by means of
such a fund. Where money is paid into a bank account, which then
becomes overdrawn, the fund ceases to exist. Equitable tracing therefore
cannot be pursued through an overdrawn account, and the beneficiary
cannot claim a proprietary interest in other assets belonging to the trustee
in priority to other unsecured creditors on the ground that his assets had
been misappropriated in breach of trust: see Bishopgate Investment
Limited -v- Homan [1995] Ch.211 per Dillon L.J. 216d-f and 218e – 220-h
4. tracing is only possible to the extent that the balance ultimately standing
to the credit of the trustee in the bank account does not exceed the
lowest balance of the account during the period since the money was paid
into the account: James Roscoe (Bolton) Limited -v- Winder [1915] 1
end quote
BAP clients account balance reduced to £10 k each week when Barclays automatically took the cash out.
Is anyone happy with the idea that they can pay a Yacht broker £100 000 on Monday and by Monday night the Broker has used £90 000 to reduce his overdraft.
How can the Yacht Brokers/Dealers associations allow this to continue.
Now I expect and accept others are not in total agreement with my report, it was written in less than 20 minutes, but please take on board the serious short comings of the current situation and help put pressure on the various Marine associations to get their camp in order, hopefully by producing their own report and advice .
Lets not loose sight of the fact that BAP where well respected and they were trying to safeguard clients funds, they were apparently oblivious to the dangers and all Brokers need to investigate just how safe their clients funds are.
This post should be read as a starting point . end copy post of just over a year ago
It is reassuring to know since that thread YDSA have adopted a similar wording (BTW jfm, my wording was deliberately not 'slick' to give them a chance to use their own version) to the one suggested , choosing a YDSA Broker and checking he has a letter from his bank will give you a little protection but really you should ask for your sale to be 'escrow' but we need jfm to explain that.
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jonic
Well-known member
If I were to borrow just £1 from my client account it would be invalidated.
If I decided to steal from it I would go to Prison.
It is 100% my clients money and £100's of £1000's happily pass through it all year long on that basis.
I know it and the bank knows it.
Threads like this always degenerate into scaremongering and lose sight of the fact that hundreds of client accounts are operated correctly every single day.
I'm buying a house at the moment and using a solicitor. I must be mad
If I decided to steal from it I would go to Prison.
It is 100% my clients money and £100's of £1000's happily pass through it all year long on that basis.
I know it and the bank knows it.
Threads like this always degenerate into scaremongering and lose sight of the fact that hundreds of client accounts are operated correctly every single day.
I'm buying a house at the moment and using a solicitor. I must be mad
DAKA
Well-known member
Where your post is accurate and sincere it looses sight of the risk.
You shouldnt bury your head in the sand, there are buyers out there with cash who aren't prepared to take the risk.
Brokers should attempt to have simple legislation passed to the effect Yacht Brokers must maintain clients accounts and are not allowed to borrow from them, they could then be allowed to benefit from the FSA compensation scheme (FSCS) , there would be a cost to join the scheme but if you are right and there isnt any risk then the cost would reflect the low risk and be negligible.
OR
Why cant the yacht brokers association issue an Escrow wording and allow their own clients account to be shared ?
Nautical
Active member
Which apart from the law society compensation scheme is exactly what the broker is trained for, does and has been paid to do
All of our contracts and documents are legally binding documents that are drawn up by specialist lawyers that follow an agreed procedure.
Due diligence is completed in the form of mortgage checks, title checks, RCD and vat evidence checks.
Monies are held in trust at designated client accounts.
Title is passed over free of encumbrance via the s&p contract and the Bill of Sale.
The broker settles outstanding marina bills and finance.
The broker only disburses final monies and exchanges title when all steps have been correctly completed and documented.
That is what a broker is for in addition to the sales and marketing.
The only reason to add a lawyer- who unless he is a marine specialist will probably know less than the broker- is if you think the broker is incompetent or fraudulent.
Understood and thats great if the broker is ABYA registered, many are not. We are but still we use an escrow lawyer for our clients, they prefer in some cases the idea (even though your statement is correct re client account registered with the bank) of the monies going somewhere completely independant of any bank we are asscocciated with not because they do not trust us of course but with the values we normally transact usually the client has his own lawyer involved along the way, using escrow just makes life simple and easy for both sides, the client can't stuff us on a stage payment without reasonable cause and we cannot prevent title changing so long as the client fulfils his obligations.
jonic
Well-known member
DAKA as ever I 100% agree with your sentiment. I would love the Government to pass legislation. But they do not see anywhere near enough of a problem, they don't even think the VAT on boats issue is big enough to look into some form of legislation! (Despite pressure from ABYA and the RYA)
Apart from BA Peters who were a dealer, and lets face it Barclays Bank seem to have a few question marks against them, the numbers are so small that there is no appetite from the powers that be.
Apart from Peters I know of no broker in the UK who has lost any client account money. Does any one else? If so post it on here and I will collate it and pass it higher up the chain.
So in the absence of Government legislation the position is covered by the Law. In addition, certainly since Peters, to be a member of ABYA you MUST have a correctly operated client account and you MUST be insured.
There would be no resistance from me or any other honest broker against legislation over and above the current laws of the land and the association requirements.
Lets keep these threads in perspective. When we are discussing risk on here re client accounts, what do we mean?
If it is set up properly there is no risk if the broker goes bust and no risk of the bank taking it to offset it against other loans.
The risk we are talking about is the risk of theft and or fraud and we all face that with every transaction we carry out with any profession.
Even then the law is in place to protect us.
What we really are saying is we want a compensation scheme if a broker decides to commit fraud. And we want this over and above our right to prosecute in the courts and sue.
....but it hardly ever happens.
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