Broker's Client Accounts

[jonic]

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.

understood, but I think you are US based? And are also referring to stage payments against your own new models?

 

[Nautical]

We are wholly owned subsiduary of our US parent based in Hamble, UK. Yes in general we only deal with new builds but I guess the principle is the same.

 

[Brian Legal]

Client Account

Thanks for your thread.

I am a lawyer so when acting for a buyer always look for dedicated client accounts or for the money to be held by open of the solicitors. You are also entitled to ask the broker for a letter from the broker's bank.

It is a difficult situation for a broker to be in and, unfortunately in the absence of a compensation scheme for any of the (unlikely) events you mention, there is some risk. However, that risk can be minimised by the knowledge that the broker has a dedicated client account and is a respected broker. Most good brokers will be very open about how deposit funds are held and look to minimise any risk to their clients.

This brings me back to lawyers. If an English lawyer holds the monies in escrow, it does not really matter that he / she is independent. What is important is that he / she is a regulated solicitor, that the money is placed in the client account and that the appropriate legal undertaking has been given to the other party to hand the money over on completion. As long as the lawyer is regulated by the Solicitors Regulation Authority the promise ("undertaking") is backed by insurance and an indemnity.

 

[Tranona]

Pete, I know you like to quote from the case on these specific issues because they support your prejudice. However in doing so you ignore the substantive issues of the case, which were far more important.

"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"

John has already posted the latest wording for brokers client accounts which specifically states that such an arrangement is not permitted. So, where is your evidence that the bodies you quote are ignoring the point - they are doing exactly the opposite.


"Its a shame these short comings that clearly put clients funds at serious risk aren't recognised by marine organisations."

This is just not true - see above.


"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."

There is no evidence that this practice is (or was) widespread. Nor, if you read the whole case is there any evidence that clients lost money as a result. In fact the opposite - there was always enough funds in the account to meet any demands on it, and there was sufficient there to meet all legitimate claims - indeed there was a surplus at the time Peters went into administration. I will leave you to work out why that was the case.

There are lessons to be learned from this case - it was brought because there was a dispute about the status of the client account. The judgement has clarified that and changes have been made to contracts and recommendations for running client accounts to take into account the judgement. It would indeed have been a cause of criticism if the judgement had been ignored and no changes made.

Constantly going on about things that may or may not have happened in the past is just like saying lock your children up because they used to be sent up chimneys to clean them.

In this particular case the issue was not about whether it was right or wrong to offset balances in client accounts against trading accounts. It was only brought in to explain why money was moving in an out of accounts. The movements that were of concern (if you read the whole case, and which caused people eventually to lose money) were those where deposits went into a general account before being transferred to the client account. The case was to clarify the status of those funds in relation to the trust.

So, in your crusade, suggest you concentrate on things that are a real issue, not on things that you think are, but in reality are not.

 

[jonic]

Thanks for your thread.

I am a lawyer so when acting for a buyer always look for dedicated client accounts or for the money to be held by open of the solicitors. You are also entitled to ask the broker for a letter from the broker's bank.

It is a difficult situation for a broker to be in and, unfortunately in the absence of a compensation scheme for any of the (unlikely) events you mention, there is some risk. However, that risk can be minimised by the knowledge that the broker has a dedicated client account and is a respected broker. Most good brokers will be very open about how deposit funds are held and look to minimise any risk to their clients.

Thank you

 

[gjgm]

If I decided to steal from it I would go to Prison.

. I must be mad

Some might say, only if you are caught, and even then, the seller doesnt get his money back, so that is small comfort to him.
However,the broker would have to have the intent to defraud, and then manage to do so at the very time the buyer's funds are with the broker. The shorter that time, the less the risk, obviously-and JTB managed his within 20 minutes.
If a broker can move that fast, he probably doesnt need to defraud anyone

 

[DAKA]

Originally Posted by jonic View Post
If I decided to steal from it I would go to Prison.

If you admitted that you stole the money then yes you could be in bother but prison

You need to demonstrate that you are a danger to others health or steal from HMR&C before you get locked away.

If you just said you borrowed it on Friday to go on holiday and meant to pay it back in a couple of weeks then you havent done anything a criminal court would be interested in and a civil court would ask you to pay it back as soon as you could at say £2.50p a week.
You might get a letter from one of the brokers association asking you not to do it again but seeing as there isnt a criminal case , unless you admit to doing it there isnt any actual proof of criminal wrong doing.#

Which is why there needs to be legislation passed making it a crime.

 

[gjgm]

Originally Posted by jonic View Post
Which is why there needs to be legislation passed making it a crime.

No, you just need to understand a client account, and what it does and doesnt do.

 

[Tranona]

Which is why there needs to be legislation passed making it a crime.

Before you have legislation you need to show that this happens and that people have lost out as a consequence.

Legislation is to regulate things that happen - not things you imagine might happen!

As already pointed out we have legislation that is supposed to stop solicitors from stealing (or borowing) clients' money. Not only does it not prevent this from happening, it happens so frequently that there has to be a compulsory compensation scheme (funded by solicitors - from their client income) to compensate individuals that lose out.

Many would say it is the legislation and compensation that encourages solicitors to steal because they are no longer personally responsible for compensating those they steal from!

 

[Deleted User YDKXO]

This brings me back to lawyers. If an English lawyer holds the monies in escrow, it does not really matter that he / she is independent. What is important is that he / she is a regulated solicitor, that the money is placed in the client account and that the appropriate legal undertaking has been given to the other party to hand the money over on completion. As long as the lawyer is regulated by the Solicitors Regulation Authority the promise ("undertaking") is backed by insurance and an indemnity.

Well thats the crux of it isn't it. The legal industry is far more highly regulated than the yacht brokerage industry and the sanctions for misappropriating client a/c funds are far more onerous. In theory, a yacht broker can set up what he calls a client account today, empty it tomorrow, bust his company and be trading under a different name by the end of the week. Yes his ex clients may well have the might of the law on their side but the law won't get their money back as has been proven in the past

 

[DAKA]

Pete, I know you like to quote from the case on these specific issues because they support your prejudice. However in doing so you ignore the substantive issues of the case, which were far more important.

"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"

John has already posted the latest wording for brokers client accounts which specifically states that such an arrangement is not permitted. So, where is your evidence that the bodies you quote are ignoring the point - they are doing exactly the opposite.

You are quoting an old post pre some amendments which I acknowledged in my todays post.

"Its a shame these short comings that clearly put clients funds at serious risk aren't recognised by marine organisations."

This is just not true - see above.

again you are looking at a historic post, I accept some of the short comings are now recognised, again acknowledged in my todays post above. However in my opinion there are huge gaps left wide open for misuse both accidental (BA Peters) and deliberate


"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."

There is no evidence that this practice is (or was) widespread. Nor, if you read the whole case is there any evidence that clients lost money as a result. In fact the opposite - there was always enough funds in the account to meet any demands on it, and there was sufficient there to meet all legitimate claims - indeed there was a surplus at the time Peters went into administration. I will leave you to work out why that was the case.

There are lessons to be learned from this case - it was brought because there was a dispute about the status of the client account. The judgement has clarified that and changes have been made to contracts and recommendations for running client accounts to take into account the judgement. It would indeed have been a cause of criticism if the judgement had been ignored and no changes made.

Constantly going on about things that may or may not have happened in the past is just like saying lock your children up because they used to be sent up chimneys to clean them.

In this particular case the issue was not about whether it was right or wrong to offset balances in client accounts against trading accounts. It was only brought in to explain why money was moving in an out of accounts. The movements that were of concern (if you read the whole case, and which caused people eventually to lose money) were those where deposits went into a general account before being transferred to the client account. The case was to clarify the status of those funds in relation to the trust.

So, in your crusade, suggest you concentrate on things that are a real issue, not on things that you think are, but in reality are not.

Well that is the problem, agreed I have crusaded on about this for years (including during the BA Peters trading days) and for years I have been shouted down as a troll, I waited patiently for BA Peters to go bust and waited patiently for the complicated case to be resolved, took 2-3 years, when it is resolved and all my crusade is thoroughly vindicated now with quoted documented case history, you say oh shucks, that was ages ago

There could well be cases going through right now, I have two cases at the back of my mind but I am not stupid enough to name names as I could be sued so I will have to wait patiently again

You have case history, you are able to read it as well as I can, last time we ping ponged around for years but lets just agree to disagree and get on with life, at the end of the day my beliefs irrelevant, Im just a potential buyer who doesnt trust the system, I cant change anything. I assume you have nothing to do with the trade either or I would have thought you would have been polite enough to mention it, so lets just let the Brokers association get on it.
The last time we wasted our time arguing for days and at least one of the Brokers association got involved and changed their wording shortly afterwards

Seeing as you have spotted my crusade perhaps I should state my goal


To encourage a regulated clients account with legal status.
To encourage a compensation scheme such as the FSCS for loss of clients account funds and also to compensate for bad advice from Brokers.
To encourage Yacht Brokers associations to formulate Escrow agreements for general use as an option and to have a Yacht Brokers association clients account available for use with ALL yacht sales including private (for a fee).

The latter appears to resolve much of the issues at minimal cost but assumes the Yacht Brokers associations are reputable, there would need to be some safeguards.


Why do I have these goals

I want to change my boat but dont feel safe to do so.


Much of your criticism of my post appears to be that I have not recognised recent changes following our last post series, I accept your criticism and I will now attempt to edit my above post to make it clearer.

 

[SailorBill]

Seeing as you have spotted my crusade perhaps I should state my goal

To encourage a regulated clients account with legal status.
To encourage a compensation scheme such as the FSCS for loss of clients account funds and also to compensate for bad advice from Brokers.
To encourage Yacht Brokers associations to formulate Escrow agreements for general use as an option and to have a Yacht Brokers association clients account available for use with ALL yacht sales including private (for a fee).

+ 1

 

[jonic]

I suspect this thread will soon drift off into the usual hysteria.

[/IMG]

No one would disagree with the sentiment and there are already safeguards and laws in place against the unlikely and hardly ever happening events. Additional legislation has to come from the Government and no one would oppose it, but please lets keep some perspective.

I'm out.

 

[gjgm]

Daka, I dont understand why you say you cant change your boat because of brokers' client accounts. Then dont use them.
If you feel safer with the transaction handled by a solicitor,for example, do that?

 

[DAKA]

[/IMG]

there are already safeguards and laws in place against the unlikely and hardly ever happening events.

Are you sure thats not just a rumour circulated by Yacht Brokers ?
Can you point me in the right direction to find the law you refer to please.

I assume you are an honest yacht Broker and wouldnt attempt to steel from anyone but you shouldnt assume other yacht brokers wouldnt see a short term loan from the clients account as acceptable in order to prevent their company from failing..........especially if they dont see it as being illegal as you do, so I think you best post a link to the part of the law that makes it illegal for a yacht Broker to borrow funds on a temporary basis to reduce his over draft as BA Peters did encouraged by barclays Bank, do you think barclays agree with you that it is illegal ?

gigm, I'm still thinking , I dont understand escrows and I think they are only viable for large deals due to the cost of the agreements, if the Yacht Brokers association paid for an escrow agreement to be drawn up for use by their brokers then perhaps escrows could be a sensible alternative for joe public.

 

[Tranona]

Once again you have not demostrated any need for such legislation. An escrow account through a solicitor is already available for you to use if you wish. Similarly a private transaction can involve a solicitor if the parties agree.

I just fail to see what legislation will achieve that is not already available.

And as ever, you have failed to show any evidence of brokers stealing from clients funds! The failure in Peters was primarily related to new boat sales, as most of the other similar failures.

I am sure that you are perfectly capable of looking after your own interests when buying or selling a boat - just the same as the thousands of others who do so successfully each year. Why do you not feel safe when you understand the potential risks (small though they are) and are fully conversant with the mechanisms available to minimize the risks.

 

[Tranona]

Well thats the crux of it isn't it. The legal industry is far more highly regulated than the yacht brokerage industry and the sanctions for misappropriating client a/c funds are far more onerous. In theory, a yacht broker can set up what he calls a client account today, empty it tomorrow, bust his company and be trading under a different name by the end of the week. Yes his ex clients may well have the might of the law on their side but the law won't get their money back as has been proven in the past

While there are more controls over the legal profession it does not seem to stop some of them from stealing clients money. Perhaps it is the existence of joint and several liability by partners, plus a compensation scheme, that encourages such behaviour as the cost is not met by the perpetrator.

Once again you talk about a theoretical situation with absolutely no evidence of it actually happening. And remember many brokers are sole traders so they are personally liable if they steal clients' money.

Where are your examples to support your last statement?

As has been shown in the many threads on this subject, the failures in the boat buying business are related to traders, either selling boats (both new and used) on their own account or building boats for sale direct to consumers - not brokers handling the buying and selling of boats as agents for private individuals.

The potential protection using the various types of contracts in these situations generally give far more security to buyers than most other consumer transactions where there is a delay between payment being made and goods or services being delivered. Just think of all the people who have lost money in such areas as building work, home improvements etc. And when did car dealers offer you a contract that gave you beneficial ownership of a portion of your new car in return for your deposit? In all these cases you become an unsecured creditor who can lose your money if the trader becomes insolvent before he delivers the goods.

That is the "crux of the matter".

 

[DAKA]

While there are more controls over the legal profession it does not seem to stop some of them from stealing clients money.
Once again you talk about a theoretical situation with absolutely no evidence .

Im sure Mike is able to answer for himself but in the mean time if I may jump in here, mainly due to the fact that you have previously asked the same question from me and I have already responded to you so you should know without the need to ask Mike, but as you appear to have forgotten.............


Its easy to find evidence of Solicitors steeling money because it is illegal and they get convicted in a court of law, as such we can talk about them on an open forum without risk.

You know as well as I do that it isnt illegal for a yacht Broker to 'borrow' from the clients account (as long as he says at the time of borrowing he meant to pay it back) . as it isnt illegal there arent any court cases to direct you to, now you keep attempting to force us to name names of yACHT brokers that we know have had their fingers in the honey pot but as soon as we name names the thread will be terminated and we run the risk of being sued as their isnt likely to be any court case to provide the proof you demand.

Not meant to be short or abrupt, just getting a bit late and I dont want to spend 1/2 hour attempting to make it sound 'friendlier ', if thats the right phrase, you know what I mean .
cheers
Pete

 

[jonic]

Im sure Mike is able to answer for himself but in the mean time if I may jump in here, mainly due to the fact that you have previously asked the same question from me and I have already responded to you so you should know without the need to ask Mike, but as you appear to have forgotten.............


Its easy to find evidence of Solicitors steeling money because it is illegal and they get convicted in a court of law, as such we can talk about them on an open forum without risk.

You know as well as I do that it isnt illegal for a yacht Broker to 'borrow' from the clients account (as long as he says at the time of borrowing he meant to pay it back) . as it isnt illegal there arent any court cases to direct you to, now you keep attempting to force us to name names of yACHT brokers that we know have had their fingers in the honey pot but as soon as we name names the thread will be terminated and we run the risk of being sued as their isnt likely to be any court case to provide the proof you demand.

Not meant to be short or abrupt, just getting a bit late and I dont want to spend 1/2 hour attempting to make it sound 'friendlier ', if thats the right phrase, you know what I mean .
cheers
Pete

What a load of rubbish.

Millions of pounds are transacted through professional accredited yacht broker client/escrow accounts correctly, safely and legally every day.

You are attempting to discredit 100's of professional organisations who have the correct procedures in place and on an open public forum you are distorting the truth.

You keep on about it not being illegal to borrow from a client account. It may not have a special law on the statute but it is illegal to commit fraud and it is against the rules of the association and it is against the rules of set off against the account set by the bank which both parties sign a contract pertaining to. The whole purpose of using a broker at that point is to safeguard your money from the purchaser or vendor, by having the money in escrow/client account until all parties have fulfilled there contractual obligations.

The guidance from ABYA recommends the accounts are audited and may only show disbursements, you certainly have little understanding of what a client account is.

If you know of any brokers fraudulently misusing them, then name and shame.

No one would disagree with you regarding misuse.

But your continued hypothetical posts are damaging to legitimate businesses.

 

[DAKA]

What a load of rubbish.

Millions of pounds are transacted through professional accredited yacht broker client/escrow accounts correctly, safely and legally every day.

You are attempting to discredit 100's of professional organisations who have the correct procedures in place and on an open public forum you are distorting the truth.

You keep on about it not being illegal to borrow from a client account. It may not have a special law on the statute but it is illegal to commit fraud and it is against the rules of the association and it is against the rules of set off against the account set by the bank which both parties sign a contract pertaining to. I deduce you havent even read up on the BA Peters case, as the BA Peters case is absolute proof that some Yacht Brokers borrow from their clients accounts. The whole purpose of using a broker at that point is to safeguard your money from the purchaser or vendor, by having the money in escrow/client account until all parties have fulfilled there contractual obligations.

The guidance from ABYA recommends the accounts are audited and may only show disbursements,You say that some Yacht Brokers associations recommend audits, you fail to mention that you dont even need to be part of an association in order to trade as a broker, worst you fail to mention that no yacht brokers association have any system what so ever to send in auditors on a spot check to ensure their members are complying with their recommendations, nor do you mention the penalty for non compliance, zippo, worst case expulsion but carry on trading as you dont need to be a member. you certainly have little understanding of what a client account is.

I have a clients account, I set my first clients account up on a voluntary basis with Nat west, the local manager set up an account to run in tandem in a similar way to BA Peters. I didnt like it and I stopped it , I then went to another VERY WELL KNOWN bank where the local manager asked if I needed any special facilities, I asked what he meant and he said that he would set up an account to run in tandem where my mortgage would be cleared with the client account credit. I then went to a third very well known bank and I had to talk them through how to set up a trust account and word letters for them to sign in agreement. It is the experience I gained during this process that started me off several years ago (Before BA Peters going bust) on this forum trying to educate buyers, sellers and brokers. I had to wait until BA Peters case notes were released in order to prove my predictions. I have since extended my education program to encompass several Broker associations, unfortunately ignorance in the main barrier , the banks dont understand the issue (local level) , some apparently knowledgeable legal experts dont understand the issues and post half baked responses which really dont help, please read my copy paste post above from just over a year ago and you may begin to get a glimpse of the issues

If you know of any brokers fraudulently misusing them, then name and shame.its not fraud to borrow (as you are honest I assume you have a specific agreement which say you will not borrow but come on, you cant seriously expect all brokers to act as you do

No one would disagree with you regarding misuse.

But your continued hypothetical posts are damaging to legitimate businesses.

JEEEZE, hypothetical http://www.ybw.com/forums/showthread.php?t=254190 you have direct links to case history FFS