The Financial Services Compensation Scheme has made a first payment of £26.6m to the Joint Special Administrators of failed Newcastle-based wealth manager WealthTek LLP.

The payment will help begin to meet some of the compensation due to clients of the firms which collapsed with an £81m gap in its finances.

In a statement this week, the FSCS said that in addition to the administrators costs, valid FSCS claimants were entitled to shortfall compensation for missing sums identified in their client assets or client money.

In their latest update report this week, the Joint Special Administrators said that their investigations had identified a client assets shortfall of £80.8m, made up of a custody asset shortfall of £70.6m and a client money shortfall of £10.2m.

In March this year the FCA launched a criminal investigation into WealthTek LLP following the discovery of an £81m gap in the firms’ finances.

To enable a criminal probe to take place, the FCA won a High Court order pausing its civil investigation into the firm and owner John Dance to allow it time to investigate “suspected criminal offences by Mr Dance.”

The regulator has already been investigating the firm over suspected “serious regulatory breaches.” The FCA said the pause would last 12 months.

Apart from being the founder of WealthTek, Mr Dance is also a leading and well known figure in British horse racing.

The FSCS said that valid claimants' share of the costs and any shortfall will be added up and paid to the Joint Special Administrators (JSAs), up to the overall FSCS compensation limit of £85,000 per claim.

The FSCS has now paid just over £26.6m to the JSAs, which represents the first portion of costs and shortfall compensation. The compensation has been paid in regard to eligible clients who have opted in for FSCS compensation.  

The FSCS said its first payment to the administrators will allow onward payment to customers through either a transfer to a nominated broker or directly.

A further hearing into the matter is due to take place today to clarify outstanding issues on the costs reserve following a recent court judgment. 

In April last year the FCA ordered WealthTek Limited Liability Partnership to cease all regulated activities following the discovery of regulatory and operational issues.

WealthTek (FRN: 832264) is an FCA-authorised and regulated wealth manager. It provided discretionary, advisory and execution-only services to its retail clients. WealthTek also trades under the names of Vertem Asset Management and Malloch Melville.

Vertem is an independent investment manager based in Newcastle upon Tyne, with clients across the UK. Founded in 2010 by John Dance, Vertem specialises in bespoke investment portfolios for professional clients, private individuals, charities and pension funds. The firm works with private clients and via intermediaries including IFAs.

Malloch Melville is an Edinburgh-based wealth manager and stockbroker founded in 2015 by Jeremy Balfour-Melville and Thomas Malloch. The firm creates investment solutions for financial advisers, private individuals, family trusts, corporates, IHT portfolios, GIAs and SIPPs/SSAS.