Hargreaves Lansdown fined £300,000 for risk notification failures

Secure Growth Portfolio (SGP), a discretionary service sold principally through direct offer by Hargreaves Lansdown Asset Management Ltd (HLAM) between 1992 and 2002, was marketed as “lower equity risk” but the firm’s failure to advise clients promptly of new and possibly major significant negative factors has led the FSA to impose a £300,000 penalty. While SGP invested only in traditional zero shares in split capital investment trusts the low risk classification was warranted but by 2001 it held zeros in trusts that were more highly geared, held other splits and raised allocation charges to capital. The FSA found that the firm’s quarterly “Investment Review” for the SGP in January, April and July 2001 was “unrealistically optimistic” about the zeros market. Customers would not, it says, have been able to discover that their funds were no longer invested only in the traditional type of zero described in the original advertisement. In October 2001 HLAM raised SGPs’ formal risk rating but this was not clearly set out in the quarterly Review sent to customers which still described the service as “lower risk” on the front page and only categorised it as “low/medium” in the “Technical Factors” section at the end of the publication. The firm’s records did not indicate when the change was made and “there is no evidence” of a mechanism to register that SGP direct offer customers should be apprised of market changes, their possible effects and whether the investment management mandates might need to be revised.