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A 'secure' investment is not 'guaranteed'

Simon Gompertz
Working Lunch

Bill Moist
Bill Moist has lost 200,000 as a result of trusting a 'secure' deal.

Imagine you had just sold your stake in a business and you wanted to park the cash somewhere safe.

Except that it is last summer and you are a bit worried that bank deposits are only guaranteed up to 50,000.

Then your bank suggests that you salt it away in an investment plan which is "capital secure", as it says on page one of its brochure.

Then you read that in the worst case scenario "your original capital will be repaid" and that the plan is for someone wanting a "capital secure investment".

It doesn't stop there. On page four, under the heading "Full repayment of your capital at maturity", you are reminded that the plan is "100% capital secure" and that you are investing in something with "growth potential without risking your capital".

What you wouldn't expect after reading all of the above is to be informed that all your money may have been lost due to the collapse of the US investment bank, Lehman Brothers, just weeks later in September 2008.

You didn't even know Lehman was involved.

Disastrous advice

This is the catastrophic investment strategy recommended by Lloyds TSB to Working Lunch viewer Bill Moist, from Chester-le-Street in County Durham. Bill thinks he has lost 200,000, part of the proceeds from a traffic management business built up over 30 years.

"100% secure" did not mean "100% guaranteed", but Bill had to find that out the hard way.

"Lloyds told me that they could guarantee only the first 50,000 of each account with them," Bill recalls, "and that because of the amount of money I had in the account it would be safer to move the money from Lloyds into a 100% capital secure plan."

That recommendation earned Lloyds 12,000 in commission. But, commission aside, what had Bill been sold?

Bill's plan in detail

His Capital Secure Fixed Growth Plan, dated June 2008, is one of a family of complex investments which have been dubbed "structured products" in the business. The potential gains are linked to the stockmarket, while the capital is shielded, supposedly, by a investment bank which plays the markets to cover its exposure.

In Bill Moist's case, the investment bank was Lehman, the brochure was written by a UK firm called NDFA and the sales were made by banks and financial advisers across the UK.

In a note on page seven of the NDFA brochure, there is a warning that "the Issuer" may fail to meet its obligations and that the investor faces this risk. But how was Bill supposed to square this with the multiple promises of security?

Secure does not mean guaranteed

"100% secure" did not mean "100% guaranteed", but Bill had to find that out the hard way.

"I paid Lloyds and their professional advisers to do the research to provide me what they told me they were providing and that was capital security," complains Bill. "If I'd had to rely on my own expertise, which is nil, why would I go to these advisers?"

NDFA refused to reveal how many investors have been affected by the debacle over Lehman-backed plans. Nor would Lloyds Banking Group, as it is now known, comment on numbers or sums involved. But taking in customers of other banks and financial firms, the total affected could run into the thousands.

A case to answer

Bill Moist is taking his case to the Financial Ombudsman Service, claiming that he was misled by Lloyds. Meanwhile, the Ombudsman has received dozens of other complaints and some investors are planning to form an action group to try to draw attention to their plight.

Adam Samuel
Adam Samuel thinks Bill has a case.

Working Lunch showed Bill's story and his paperwork to Adam Samuel, who used to be a personal investment authority ombudsman and now works as a compliance adviser.

His view? Adam Samuel believes Bill Moist has a strong case against both Lloyds and NDFA.

"The NDFA advertising is misleading," he argues, "It certainly breaches the requirement to be clear, fair and not misleading. It says on 17 occasions, according to my count, that his capital is secure."

The trouble with Lehmans...

On Lloyds, Samuel points out that there had been fevered speculation about Lehman's financial health in March last year, months before Bill invested his 200,000.

"They advised Bill to put his money, fairly close to retirement, into an investment which offered capital security but only if an investment bank survived, which happened to have had this wobble several months previously."

Lloyds should have known this, contends Samuel, and the information should have been passed on.

"In June the capital security of banks was in question, the credit crunch was in full swing, there were big problems with American banks," Bill says despairingly, "Surely someone at Lloyds selling a 100% secure bond would not think of putting any money into financial institutions in America? Even I know that."

Statement from Lloyds Banking Group

"We are confident that our adviser followed the appropriate sales practices with regards to Mr Moist's case and that all the risks (both of the investment and of insolvency) were clearly set out in the documentation provided to him before he decided to invest in the NDFA plan.

"As this case is now in the hands of the FOS, we would not wish to comment any further."

Statement from NDFA

"NDFA structured five investments through Lehman Brothers, three of which were named 'Capital Secure Fixed Growth'. Capital protection was one of the Plan features offered by Lehman Brothers and, as is clearly stated in the Plan documentation, if the Issuer is unable to meet that liability, the amount that an investor would be repaid would be reduced.

"We reviewed the Plan documents fully and carefully and are satisfied that they comply with the requirements set down by the FSA in the 'Conduct of Business' section of the 'FSA Handbook'. Customers were provided with appropriate information in a comprehensible form about the nature of the investment and the risks involved."

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