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FSA to probe paperwork as maturing bonds fall short

IFAs face the scrutiny of letters to clients on execution-only

business as a further wave of stockmarket bonds mature, leaving

shortfalls on investors&#39 initial investments.

The FSA says it expects to take enforcement action over the products

it has named “precipice” bonds where IFAs&#39 accompanying lettersare

misleading, even if the marketing literature warned the client of the

high risk.

Investors in the Scottish Mutual income bond 9 learned this week that

the performance of the Eurostoxx means they lose 56 per cent of their

capital but because they received income of 24 per cent over the

three years, investors will see a net loss of 32 per cent.

Others have seen their capital reduced by 38 per cent in the AIG

stockmarket income bond 1, which paid income of 34 per cent over the

four-year term – a net loss of 4 per cent.

Investors in the NDF extra income & growth plan 2 are on course

to lose 86 per cent of their capital by the time the plan matures on

May 22.

Chartwell Investment Management director Patrick Connolly says: “The

majority of these bonds were sold on an executiononly basis so the

regulator will look at either the provider&#39s literature or the IFA&#39s

accompanying paperwork.”

FSA spokesman Rob McIvor says: “We will be looking at accompanying

letters that gave clients a steer.”

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