Barclays increased risk rating of funds without telling investors
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Barclays has admitted failing to inform clients after increasing the risk classification of a number of funds.
This week’s Money Marketing reveals that in mid-2007, Barclays introduced a new system of assessing client risk appetite and all products it advised on were reassessed in line with the new system.
The risk rating on some funds was increased but the multi-tied advice arm of Barclays failed to inform clients with money in the particular funds.
Barclays dynamic tracker fund was reclassified as adventurous rather than balanced and the dynamic 70 tracker changed from cautious to balanced.
The risk rating of the Norwich Union balanced distribution fund changed from cautious to balanced.
Barclays says that the risk ratings of a number of other funds were also increased without the clients being informed.
Last April, Money Marketing revealed Barclays erroneously categorised the Aviva global balanced income fund as balanced rather than adventurous between July and November 2007, after the introduction of the new classification system.
A Barclays spokesman says: “We did not notify existing customers of the change to the risk classification of the funds.
“We are constantly evaluating and amending our investment processes and only notify clients when there is a material change that affects them. When we introduced our new risk-rating system for clients and products, this did not affect existing clients whose risk appetite was assessed and aligned with appropriate products under the rating system in use at the time.”
Informed Choice managing director Martin Bamford says: “If the risk profile of the fund has changed but the risk profile of the client stays the same, how can it still be suitable?
“Barclays seem more concerned about covering its back over the initial sale rather than ensuring the advice remains suitable for its clients.”
The Financial Ombudsman Service has received a large number of complaints about Barclays’ sale of the Aviva global balanced income fund.
The ombudsman is due to issue guidance shortly to adjudicators on how to handle complaints regarding the suitability of the fund.
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Readers' comments (8)
Anonymous | 3 Feb 2010 8:58 am
In the words of Barclays, 'We are constantly evaluating and amending our investment processes and only notify clients when there is a material change that affects them.'
.......Yeah guess that a change in risk exposure is not really relevant of affecting a clients investment portfolio.
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John Blackmore | 3 Feb 2010 9:01 am
It is fairly pointless to risk rate funds in any absolute sense. The same fund may be considered safer or riskier depending upon numerous factors including time, risk capacity and attitude.
cash for example may be deemed to be safe if looked at over a short period like 6 months but at the far end of the risk scale over say 50 years. An emerging market fund may be seen as the reverse.
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Anonymous | 3 Feb 2010 9:34 am
Obviously risk/performance of funds alter over time but this does not mean they are not useful as a guide for investors, provided they are kept fairly current to market and so are clients. If a client has specified a risk and been advised of an investment that is within that comfort of risk I would still suggest that if this changes (especially where deemed to be clasified as more risky) surely the client should at least be made aware!!
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SIMON MANSELL | 3 Feb 2010 10:29 am
Not a problem - this is a bank & banks as we know are not regulated by the FSA!
'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.'
Thomas Jefferson 1802
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Julian Stevens | 3 Feb 2010 11:07 am
Spot on Mr Mansell. And what has the FSA done about Barclays' sales of the Aviva Global Balanced Income fund? Just left it to the FOS, whose adjudicators are to receive "special guidance". Why? What's special about this particular series of cases, other than it is a bank? And why are so many of these complaints being referred to the FOS in the first place?
Were the culprit a network, you can bet your botton dollar that the FSA would be down on it like a ton of hot bricks.
Yet there are some who say that all this talk about regulatory favouritism of the banks is just a load of paranoid rubbish. In what world are you people living? The evidence is all around us for all to see.
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XXXR | 3 Feb 2010 11:13 am
It's interesting to note this in the context of CESR's proposals to include risk ratings in all simplified prospectuses from 2012. The current proposals would require providers to update their risk ratings whenever there is a material change in the risk rating. As this is all based on past performance, what is the point.
Also, and slightly going off on a tangent here, what about funds employing full UCITS III powers? Surely the risk profile of these funds are very different to normal long only investments; they are not comparible with each other. There needs an explanation that there is a low risk of something going wrong (if that is the case!) and a high probability that if something does go wrong investors will lose a lot of money. So if this is to be presented as one figure/ table/ graph, will it be high, low or medium risk?
Also, I think that these ratings and the way they are presented allows clients to pay too much attention to them. As they are nothing more than presenting past performance in a different way, shouldn't the regulators require a big past performance warning to sit alongside the information?
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Jerry Heans | 3 Feb 2010 12:39 pm
Well said Julian! I would make the same comment, what headline would we have seen had this been a small IFA practice? Very different to the above I am sure! Absolute evidence that there is a culture of favouritism towards the 'do no wrong banking institutions'. This evidence suggests otherwise of course!
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Colin Palmer | 4 Feb 2010 9:26 am
Has it not always been thus! Ever since I have been on this planet successive Ministers of State have left office and taken up a (highly paid, advisory) position in the sector that they regulated. Energy ministers working for Oil Companies, Transport to the Train operators etc., There can only really be one type of bolthole for ex Treasury ministers and FSA to go and that is to the banks. Lets not muddy the waters, eh Chaps!
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