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Off balance

The admission by Barclays that it incorrectly categorised the risk of one its biggest-selling funds will do little to calm the nerves of the public, most of whom probably now rate bankers below estate agents when it comes to those they trust least.

Make no mistake, Barclays, one of Aviva’s so-called “strategic partners”, heavily pushed global balanced income. In the Morley interim report in 2007, Barclays was highlighted for being a “significant” distributor of the fund which had swelled to £230m in size within just 12 months.

Barclays’ response to the barrage of criticism from customers, the press and IFAs to the advice given on the fund is as you would have expected.

Reading its statement to journalists, Barclays gives the impression that it has done little wrong. Why? Because it spotted the fund’s risk assessment error, then admitted that it had made an error and subsequently wrote to clients affected offering them some sort of recompense.

It is anyone’s guess why a fund taking currency bets, using call options, forward transactions and money market instruments was categorised in its more cautious “balanced” category rather than its “adventurous” category in the first place.

There is always a concern when a new fund sells by the bucketload with no track record or star managers at the helm.

Commission is not to blame here apparently as advisers are paid a flat fee, so one can only assume that the Aviva sales team must have played a blinder when they were on the road promoting the fund’s alleged attributes.

But the issue here is less about performance and more one of advice. One of the criticisms against Barclays’ advisers is that customers were persuaded to invest hundreds of thousands of pounds in just one fund. I find it odd that Barclays states that there is nothing inherently wrong with this.

The bank’s defence is that the fund in question has a diversified portfolio so it should not be viewed just as a single sector or single-asset class fund, rather “an income solution managed on an ongoing basis by a professional fund manager”.

This is fine in principle but Barclays is overlooking one important fact – that the investor has their money riding on the manager running the fund – in this case, two. That is a huge bet that investors are taking.

Having a fund exposed to one asset class or 10 is neither here nor there if the manager or managers make the wrong call. Getting the asset allocation right is a key factor in outperforming – something that, on the face of it the Aviva fund seems to have failed to do so far during its short life.

If owning just one-size-fits-all fund worked, the balanced managed sector would be heralded by all and sundry as the answer to investors’ prayers. It isn’t. What is more, this sorry saga suggests that little has progressed with the banks over the past decade.

Remember the infamous Scottish Widows stockmarket-linked bond that invested in a basket of 30 blue-chip stocks? It was missold in huge volumes by overzealous Lloyds TSB advisers, so much so that the bank got a hefty £1.9m fine from the regulator. Not everybody got compensation. But among those who did were the poor souls who invested more than 35 per cent of their life savings into the fund.

Our much-maligned high- street banks always get agitated when the quality of advice they give is questioned but if they want the critics to pipe down, they should stop giving us the ammunition.

Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing


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