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Consumer panel chief warning on VCT risks

The Financial Services Consumer Panel chairwoman has warned that current marketing of VCTs could open up the potential for future misselling cases.

Ann Foster told the ABI annual conference last week that an early warning to advisers and consumers was needed to prevent VCTs becoming the next precipice bond or endowment scandal.

She said VCTs have traditionally been targeted at high-net-worth, risk-aware customers but she warned that a trend is developing where they are being marketed to consumers who may not fully understand the risks involved.

The panel made the FSA aware of a direct-marketing campaign last year, which was withdrawn following their advice.

But Foster says current marketing initiatives that emphasise VCTs as tax-efficient investments, in many ways comparable to Isas or an alternative pension plan, could lead to mass market customers, unaware of the high risk, being drawn to the trusts.

Foster also warned that industry standards for the equity-release market need to be of the highest order. She said good advice explaining all the dangers involved is needed because of the combination of vulnerable consumers and risky products. She said: “We are seeing a trend where the risks of VCTs are being down played. They have to be marketed very carefully, not sold to people who do not have the appetite for the risk.”

Bestinvest investment adviser Justin Modray says: “IFAs should make clients aware of the tax efficiencies of VCTs but cannot leave them blind to the dangers. The downsides of the product need to be fully understood by the client to avoid misselling claims in the future.”

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