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Bank advisers singled out specialist fund

Examples of Barclays’ advisers placing a number of risk-averse customers nearing retirement in a single specialist fund, resulting in huge losses, have done little to alter IFAs’ impression of bank advice.

Last week, Money Marketing revealed an adviser’s claim that six of his clients, who had been advised through Barclays’ branches across the UK, were encouraged to lump their retirement savings into a single unit trust classed as “specialist” by the Investment Management Association.

Park House Financial Services partner Richard Davis says advisers transferred the long-term savings of six separate clients approaching, or in, retirement into the Aviva (formerly Morley) balanced global income fund, resulting in big losses. The fund was launched in June 2006 and has fallen by more than 45 per cent in the 12 months to March.

Davis says the fund was unsuitable for these clients who were unsophisticated investors. He criticises Barclays not only for placing clients’ entire pension savings into one complex fund but also for failing to offer alternative solutions in most of the cases he has seen. He points out the fund pays trail commission of 1.05 per cent a year, compared with average unit trust trail of 0.5 to 0.75 per cent.

Davis’s clients are now facing dramatic losses as a result of Barclays’ advice and he is setting up a website for disadvantaged investors with a view to a class action.

He says one client, aged 64 and semi-retired, was offered investment advice from Barclays on how best to obtain income from his investment portfolio. He had two unit-linked investment bonds and an Isa, worth £95,000. He was advised in November 2006 to cash in the bonds and transfer the Isa, reinvesting the total sum into the unit trust. Last month, he surrendered the investment for just £45,000.

Another client with four with-profits bonds was concerned that the capital might be at risk of depreciating. They sought advice from Barclays about more cautious alternatives. Barclays arranged the encashment of three of the with-profits bonds, which had a surrender value of £360,000, in July 2007. The adviser recommended the capital to be invested in the Aviva fund.

According to Davis, the client expressed “acute concerns” to the Barclays’ adviser at a meeting in August 2008 about losses to their investment. The adviser reportedly urged the client to stick with the fund. Last month, the investment was worth just £172,000.

A third client, aged 55, had just sold his business. He had £450,000 to invest and wanted advice on how to best invest it to obtain an income.

In January 2007, a Barclays’ adviser invested £200,000 in the Aviva global balanced income fund. In June 2007, the adviser invested the remaining £250,000 in the same fund. In September 2007, the client’s partner had a further £200,000 to invest, which the adviser put in the Aviva global cautious income fund.

Davis says by April 2008 both clients were aware of the fall in value of the two funds and contacted the adviser. The Barclays’ adviser reportedly told them to complain, saying the bank would be likely to compensate them for their losses. The complaint was rejected by Barclays. Davis says Barclays told the clients that because they held windfall shares worth £8,500 they were experienced investors who must have known the risk they were taking. The complaint has now progressed to the Financial Ombudsman Service.

In November 2008, the couple cashed their investments in, realising a loss of £300,000.

Davis says the pair were contacted by another Barclays adviser in December 2008 offering to put the money where it was “safe”. He invested £340,000 in the Axa distribution fund, taking initial commission of £26,350. Davis argues the bond has a higher exposure to equities than the Aviva funds they had come out of and their investments have already fallen in value.

Davis says: “These sales represented absolutely hopeless investment advice and I cannot imagine what the adviser was thinking by concentrating everything in the hands of a single fund management team.

“I am certain that no IFA would ever invest all of a clients money in a single unit trust, let alone this one, which had no track record and features in the IMA’s specialist sector.

“This fund invests in convertibles, call options, non-investment-grade bonds and equities, hardly a core fund for the unsophisticated low-risk investor.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “If this is an institutional approach, it is further evidence that the quality of advice emanating from the banks still has a long way to go before it is acceptable.”

But Barclays insists all its recommendations are tailored to each individual. A spokeswoman says: “We recognise that all our customers are different and our recommendations are tailored to the individual needs of our customers.

“The Aviva global income funds are investments designed to provide attractive levels of income for investors prepared to accept differing levels of risk with their capital. While recent market conditions have been tough, it must be borne in mind that these products are long-term investments.”


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Broker Talkback

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