Hargreaves Lansdown has been fined £300,000 and has set aside £1.7m for compensation for failings concerning a split-capital product.
The company has been fined by the FSA for the way it described the risks of zeroes held in its secure growth portfolio – a specialist portfolio of zero-dividend preference shares.
The rule breaches also relate to the way that the composition of the portfolio changed after 2000 by moving away from what the FSA calls traditional zeroes to zeroes from investment trusts with higher gearing and cross-holdings. The literature to its execution-only clients did not reflect this. SGP and its holdings of 10 zeroes was wound up in 2002.
The FSA action is separate from its investigation of 21 firms and additional individuals for alleged collusion in the design and marketing of splits.
Hargreaves Lansdown's lawyer Reynolds Porter Chamberlain solicitor Harriet Quiney says it is accepted that Hargreaves Lansdown provided potential investors with out of-date-material and was too optimistic about the prospects for the zeroes' market in bulletins provided to existing investors in the SGP in January, April and July 2001.
But Quiney says this decision relates predominantly to two specific zeroes and does not mean zeroes were necessarily dangerous or high-risk investments, even though the performance of some has “left a lot to be desired”.
Hargreaves Lansdown is providing a £1.7m compensation package for around1,000 SGP investors who potentially lost money over a set period, whether or not they have made a formal complaint.
Chief executive Peter Hargreaves says: “We very much regret the public reprimand of Hargreaves Lansdown Asset Management in relation to the operation of the HL secure growth portfolio.
“This is the first in 23 years of business and you can be certain that steps have been taken to guard against such a situation arising again.”