“It does exactly what it says on the tin,” says one of the ads that appears regularly in the media. If you bought a tin of paint and discovered it contained soup you would be justified in claiming compensation or replacement.
Aberdeen Asset Management, with full approval from the regulator, described their progressive growth trust as “a low-risk route to reliable capital growth”. This proved not to be the case, with the fund currently down almost 50 per cent over the past 12 months.
Perhaps more disturbingly, investors in other funds of this type under their management have lost almost 100 per cent of their value. To be fair, it was never described as risk-free but investors had every right to expect that volatility would be at the lower end of the scale.
IFAs had few complaints from clients when “high-risk” funds experienced extreme volatility (although Aberdeen technology lost only 16.2 per cent over the past 12 months).
The warnings had been clearly spelled out but, because of the nature and wording of the “approved” literature associated with zeros, this fund attracted much higher levels of investment from investors who were willing to accept only modest exposure to volatility.
Realistically the effects of 9/11 should, in fact, have boosted the performance of this alleged stable investment. Previous correspondence and the ongoing FSA investigation suggests that some form of compensation may be the final outcome and I would in no way disagree with this.
Aberdeen Asset chief executive Martin Gilbert was quoted as saying “no one is really to blame” but this is obviously not the case.
The split/zero fiasco which has affected so many innocent investors is a vastly more deserving case for compensation than the majority of pension and endowment “handouts”. Compensation was frequently awarded when clients were actually in profit and a “loss” was 20 years or more away.
Unqualified financial “scribblers” also heavily promoted investments of a zero nature but there is little point in knocking on their doors.
A solution could be for unit trust managers along with the (culpable) regulator to underwrite investor losses if 6 per cent annual growth were not achieved after a period in force of, say, five years. This level of growth is less than the aim of the fund and no investor was in it for the short term.
The FSA should take 40 per cent of the cost, with fund managers taking 60 per cent. This would give them ample time and incentive to put matters right with no loss to themselves.
This approach would do nothing for the share price (and employee options) of Aberdeen AM but it would go a long way to boosting consumer confidence which, after all, is in everyone's interest.
This is one case where the finger of responsibility in no way points in the direction of the independent adviser. Come on FSA – get your hand in your pocket for the benefit of all. This would show the investing public that the watchdog had a heart as well as teeth.
Aberdeen Asset Management is a quality organisation that still commands respect within the industry and they should embrace an honourable solution and realistic settlement such as this. Investors through-out the country – and especially from this practice – will watch the deliberations with interest.
Aberdeen Provident Services, Aberdeen