The record fine imposed on Barclays this week is not expected to be the last for the industry, as the market downturn of 2008-09 has revealed that many private investors did not realise the risks attached to funds they were sold.

Barclays Mis-Sold Investments


Barclays was fined for faults in its investment advice after the Financial Services Authority (FSA) uncovered ‘serious failings’ in its sales processes. Its in-house sales advisers did not make sure that the funds were suitable for its customers – many of whom were retired or approaching retirement.

But the fine, the biggest so far, is not the first to emerge from the wake of the credit crunch. While Barclays was not accused of misselling funds – a more serious charge that involves actively misleading consumers rather than failing to inform them – RSM Tenon was fined by the FSA last year for misselling structured products, while Keydata was put into administration by the FSA in 2009 after misselling funds.

Fiona Fry, a regulatory partner at KPMG, said she was seeing more investigations around sales and complaints about products, meaning that the Barclays fine was ‘likely to be followed by more fines for other organisations’.

Some advisers and fund managers believe that part of the problem in explaining risks to investors lies in the name of the product.

Adrian Lowcock at financial advisory group Bestinvest said: ‘Cautious may well mean something entirely different to two people, so one investor may find a cautious fund appropriate while another sees it as too risky.’

The FSA is aware of the problem of how funds are named and the Investment Management Association is conducting a review of some of its sectors.

However, others believe the problem lies more in the way advice is given.

Banks frequently sell investment products, often from insurance companies, in their branches through ‘tied’ advisers – who do not advise on the whole market but instead just sell a limited range of products. An upcoming ban on allowing financial advisers to take commission is not expected to change this model.

While bank advisers will have to make their charges clear to consumers, Patrick Connolly of AWD Chase de Vere warned that ‘there is a risk that many typical bank and building society customers may not be not be financially knowledge-able, may not shop around and may not understand if they are getting a competitive deal’.

But banks will have to ensure that their advisers understand the products they are selling, which could lessen the problem that the name of the fund could mislead the investor.

‘If funds are being sold properly, then the description is actually less important – as the adviser would understand the fund correctly and advise clients appropriately,’ said Danny Cox, head of financial advice at Hargreaves Lansdown.

Mis Sold Investments 

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.