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Page last updated at 14:53 GMT, Saturday, 28 February 2009

Secure investments 'misleading'

By Samantha Washington
BBC Radio 4's Money Box

The Lehman Brothers headquarters in New York
As guarantor, Lehman going bust did not result in compensation

Thousands of people who put their money into investments that promised their capital was secure face losing some or all of their money.

Some investors put their cash into products not knowing their money was guaranteed by Lehman Brothers.

The marketing literature for some of these plans sold by two different companies has been called misleading.

The firms have said the brochures were compliant and customers were "appropriately" informed about risks.

Life savings

Alison is a part-time teaching assistant.

She wanted a secure place to put her life savings of 31,000.

When she obtained the marketing literature for the Capital Secure Fixed Growth Plan provided by a company called NDFA she was reassured by the many references to her money being "capital secure".

But having put in her lump sum Alison was shocked to receive a letter in September 2008 advising her that because collapsed bank Lehman Brothers was the guarantor of her capital, she might not get anything back.

Alison says the literature that persuaded her to put in her cash was misleading.

Appropriate information

Compliance expert Adam Samuel reviewed the NDFA brochure that Alison had seen and also one for a similar product managed by sister company Defined Returns.

He says the literature is not compliant with the regulations laid out by the City watchdog, the Financial Services Authority (FSA).

"Neither of these two brochures complies with the FSA requirement for brochures to be fair, clear and not misleading.

"It doesn't set out clearly that if Lehman Brothers goes under, the product will fail."

I was told my clients would be covered by the compensation scheme
Alan Richardson, IFA
NDFA and Defined Returns, which share an office and have some directors in common, do not accept this assessment.

The companies defend their literature as FSA compliant and say that customers always receive "appropriate information" about the risks involved.

But the lack of information about the chance that the guarantee could fail is not the only problem.

Alan Richardson, an IFA from RBS Associates, says he was incorrectly reassured by the helpline that customers would be compensated should the guarantor, Lehman Brothers, fail.

"I was told my clients would be covered by the compensation scheme.

"I wrote to reassure my clients.

"Had I been given appropriate information, clients could have decided to invest or not invest, or to encash their investments".

Call for action

The June 2008 Issue 4 document put out by Defined Returns for its Lehman backed Enhanced Returns product does wrongly inform people that should the "issuer" or Lehman Brothers go bust, compensation would be available.

The Financial Services Compensation Scheme has confirmed that only in the event of the plan manager becoming insolvent would the investor be entitled to any compensation.

A third party, or guarantor, going bust does not result in the same entitlement.

The spokesperson for NDFA and Defined Returns told BBC Radio 4's Money Box that this reference to compensation in the Defined Returns brochure had since been corrected.

Adam Samuel says that the FSA needs to take action against the two companies.

"The regulator needs to start enforcement proceedings.

"And ultimately it ought to require these firms to offer compensation in the form of a refund of their investment plus interest to anyone who invested on the basis of these brochures."

The FSA would not say if it was investigating NDFA or Defined Returns but did tell the programme that it is "considering the quality of the marketing material" of products affected by Lehman Brothers' collapse.

BBC Radio 4's Money Box was broadcast on Saturday,
28 February 2009 at 1204 GMT.

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