Watchdog fines IFAs for bad advice on Lehmans-linked investments

The Financial Services Authority (FSA) has fined two independent financial advisory (IFA) firms for the way they advised clients to invest in plans backed by Lehman Brothers, the US bank that went bankrupt two years ago.

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by Iain Martin on Sep 22, 2010 at 13:43

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The Financial Services Authority (FSA) has fined two independent financial advisory (IFA) firms for the way they advised clients to invest in plans backed by Lehman Brothers, the US bank that went bankrupt two years ago.

Lehmans acted as counterparty to many structured products, providing levels of protection and predictable returns that made the plans attractive to investors.

The bank's collapse threw the sector into turmoil and exposed thousands of investors to losses. Last week the Financial Services Compensation Scheme said it would be paying up to £22 million to investors who had been in 'capital secure' products. However, it has yet to decide on whether a much larger group of investors in what it terms 'capital at risk' plans will get anything.

The FSA today fined Dundee-based law firm Thorntons Law LLP £35,000 and one of its partners Michael Royden £10,500 over unsuitable advice relating to structured products linked to Lehman Brothers.

It also fined Belfast-based Robert Peter Yarr of McClelland Yarr Financial Services £28,000 for not fully understanding the counterparty risk posed by structured products.

Thortons advised clients to invest into structured products and told them there was no risk to their capital, when the clients could not afford to lose money, said the FSA.

The regulator said Thorntons also recommended a high concentration of customers' savings and investment portfolios be placed in structured products.

One customer had more than 45% of his wealth invested in a single structured product, said the FSA, adding that Thorntons had failed to implement and maintain appropriate compliance monitoring.

The FSA said that Yarr failed to conduct appropriate product research and failed to keep adequate records.

Margaret Cole, FSA managing director of enforcement and financial crime, said the firms lacked the systems and controls needed to give suitable advice.

‘This is vital when it comes to products which put customers’ capital at risk and we have repeatedly reminded firms that the risks must be communicated to customers in a way which is fair, clear and not misleading,’ said Cole.

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7 comments so far. Why not have your say?

No Mr Kane I do not work for either a Bank or a trade organisation although I am reasonably informed on financial matters. In this case if the FSA can make such fines on individuals as well as advisory firms, then why cannot the losing investors make similar claims on them with top upsfrom the FSCS. I would be surprised if it was decided to compensate the 'capital at risk' investors as they should have had their eyes wide open before making such an 'investment'. It is in the same order as me saying 'Invest with me and I will pay you a guaranteed interest rate of 20% for five years but your capital may be at risk'

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Can Mr Tinslay not see that it is the nature of the risk to the capital that is at issue here? The risk to the capital was laid out in tabulated form and related wholly to the stock market indices. Our wide open eyes were busy reading (and being misled) by that.

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Well said Stephnie, If I thought there was any risk other than stock market losing ground which I fully understood I would never have invested in one of these products.FSA regulated IFA;s have Qualifactions,ongoing training, mine was a one man ban,although within a national umbrella organisation who must research,and advise there IFA:s. I lost my money, he made few hundred £s for a couple of hours giving me so called professional advice. I have to work really hard for my money. Thanks have another nice holiday or a nice new car with the money you earned dishing out so called professional advice.

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This latest action by the FSA makes it all the more difficult to understand the FSCS's reluctance to take action to compensate those investors who were not informed of the total risks. The fact that a great many of the investors are persons dependent upon the income as a major part of a pension plan seems to be being ignored.

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We fully trusted our Ex IFA to take care of our saved retirement nest egg “sleep easy at night” nothing could be further from the truth. We have had two years of worry and anxiety. We now know how he misled into investing nearly 50% of our investment income in a single structured product underwritten by Lehman Brothers. No mention at all that you could loose all your capital and the income; along with many other “mistakes” we were totally miss -sold the investment. The twists and turns we have knowledge of his defence and other peoples experiences we have been made aware of over the last two years give ours and many other Independent Financial Advisors no credibility whatsoever.

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mr tinsley clearly has no understabing of the real issue here so he should just shut up rather than talk about things he is ignorant of...we all understood the risks we were signing up to...they were allFTSE performance related NOT because the vehicle itself went bust...please keep your silly opinions to yourself

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Edward Hopper

Sep 24, 2010 at 16:29

http://www.youtube.com/watch?v=JSoRlPLedcw

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