I find it rather surprising that once again the big bad wolf in a misselling scandal is the IFA. I refer to what with hindsight are now called precipice bonds.
Now it might just be that RJ Temple, Chase de Vere Financial Solutions and David Aaron were all a little too zealous in the promotion of these products and perhaps they should just have known better. Heaven knows they have all been round long enough to know that markets can collapse. I think Aaron was around in 1974 but the other two were definitely around in 1987.
However, most of the institutions putting these products together were around in 1929. At worst, the early product offered 10 per cent guaranteed income, which anyone knows means that you put your £10,000 in and get £1,000 a year back during the duration of the contract and your money back. If the investment were described as such, 1,000 people questioned on the street would suggest the above return. In fact, what they really got was a 10 per cent withdrawal and only their money back if the stockmarket behaved in a particular way.
The mystery to me is that all investment products have to show the charges quite clearly – and in these products the charges were very tasty too. Apparently, you do not need to show the charges if you offer a finite return so if Mr and Mrs Jones were guaranteed to get their 10 per cent per annum and their money back, everything was all hunky dory. However the return on these products is not finite, as many unlucky investors have discovered over the last 12 months.
Additionally, if the headline return on a product is a certain level of income or an alternative growth option depicted in numbers two inches high on the front of the leaflet that should be what you get unless any potential variation is also described in letters and numbers with similar prominence.
Now I can be smug and say that I read the small print and therefore we never marketed these products to our clients. However, if we had just stuck one of these leaflets in an envelope and slapped our stamp in the broker's stamp box together with a business reply-paid envelope, I suspect that our clients would have done an immense amount of business.
If it was the groups' literature that was impelling these people to invest, then there clearly was inadequate prominence given to the risks.
I know you cannot protect the investor from themselves and investors will believe what they want to believe but I cannot get my mind round brokerages going bust and losing their livelihood when no one has pointed a finger at the manufacturers which made the most money out of these products, which are not going bust and not having their lifestyles materially altered, indeed, they are probably still living off the profits they made from the products.
In conclusion, we do live in a strange old world. I do believe there should be confidence in the industry and brokers should know what they are selling but there should be some onus put on investors to have some duty of care to make sure they do read everything and they do make sure that they know what they are investing in.
However, I cannot stomach the fact that when something goes wrong the finger is invariably pointed at the retailer in our industry. I will leave you with a final thought. If you bought a packet of proprietary brand breakfast cereal that contained a dead rat, would you sue the manufacturer or would you sue the supermarket that sold it for not smelling the rat in the pack?