The FSA has fined Hargreaves Lansdown £300,000 for failing to notify investors in its Secure Growth Portfolio between 1992 to 2002 about changes to the levels of risk attached to underlying investments held through the service.
The SGP offered investors access to zero dividend preference shares, which until 2000 offered relatively stable investments, which warranted the “low risk” identified in the marketing material.
However, by 2001 the structure of many of the splits in which SGP was invested had changed dramatically, the FSA says, with increases in gearing and cross-holdings in other splits becoming more prominent.
These changes substantially increased the risk associated with SGP, yet Hargreaves failed to sufficiently advise customers about the changing risk level through its quarterly bulletins.
”Hargreaves Lansdown did not reflect these important changes in its brochure or the quarterly bulletins that it issued to its investors,” the FSA states.
”Its bulletins continued to be unrealistically optimistic regarding the zeros market and lacked objectivity.”
Hargreaves formally changed its risk rating of SGP in October 2001, yet the bulletin outlining the change still described the zeros as “low risk”.
”It has not been possible, however, to establish when Hargreaves Lansdown actually decided to change the risk rating,” the FSA states.
”The recollection of its staff is vague and the firm has been unable to state who decided to formalise the change to the rating or who authorised the notification to customers.”
The fine for failures relating to SGP do not form part of the FSA’s ongoing investigation into the so-called “magic circle” of splits providers, who created havoc for customers by investing in each others’ funds.
Hargreaves is now going to review the accounts of all its SGP customers, to identify losses stemming from the failures discovered by the regulator, and pay “appropriate redress”, the FSA adds.IFAonline
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined