Advice firm fined for Lehman Brothers saga

Millions of pounds were lost in complex policies backed by Lehman

A financial services firm has become the first to be fined for a saga surrounding investments backed by the collapsed Lehman Brothers bank.

RSM Tenon Financial Services, based in Hampshire, has been fined £700,000 by the Financial Services Authority (FSA) for advice and sales failures.

The case surrounds the sale of complex "structured products", which had a worthless guarantee from Lehman.

The City watchdog has investigated a series of firms which sold them.

Tenon, which has 11 offices across the UK, was the first to be fined.

But an earlier FSA investigation found that about 570 financial advice firms, ranging from one-man independent advisers to big High Street banks, had sold the policies.

About 5,600 people in the UK are thought to have lost a total of £107m.

Advice failures

Lehman Brothers collapsed in September 2008, one of the pivotal events in the international banking crisis.

WHAT ARE STRUCTURED PRODUCTS? They are complicated investment policies. They were typically sold to members of the public by financial advisers They last for a set period of time eg five years They usually have two elements. The first is a bond from a bank, which is supposed to protect the original amount invested This may also pay interest, and may repay all or some of the original capital when the policy matures The second part is a derivative - a bet on a financial market - which is supposed to generate a return for the investor when the policy matures Investors usually receive only part of any increase in the value of the derivative which occurs during the term of the investment

It led to people who had invested in these complicated policies losing money.

The FSA found that in relation to its sales of Lehman-backed structured products between November 2007 and August 2008, Tenon failed to treat some of its customers fairly.

Specifically, it found that Tenon failed to assess the risks of structured products and ensure that advisers made these risks clear when advising customers.

Customers who received unsuitable advice will now be able to sell their product to Tenon and have the money they invested reimbursed plus interest.

More generally, the business failed to have suitable risk management in place for its structured products and pension switching service, the FSA found.

Between November 2007 and August 2008, Tenon sold 425 structured products, generating commission of about £268,000.

Between April 2006 and December 2008, Tenon conducted 1,522 pension switches for 829 customers generating gross income of £3.2m.

'Tough action'

"We take failure in this area very seriously and the fine and other actions announced today demonstrate our commitment to credible deterrence," said Margaret Cole, of the FSA.

"This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review, and we acted swiftly and decisively in order to return money to investors as quickly as possible.

"We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors."

The FSA has been writing to people who bought the investments from other providers, encouraging them to complain if they think they were misled or did not receive proper advice.

The firms that sold the policies in question have been told how the regulator expects them to deal with such complaints.

A spokesman for Tenon said that it believed the "substantial majority" of sales reflected "appropriate advice" to its clients.

"Tenon Financial Services will, in line with its usual policy, offer redress to any clients who are ultimately found to have received unsuitable advice," he said.

The firm said the resulting costs would not have a material impact on the continuing business of Tenon, and the failures highlighted by the FSA had now been addressed.

E-mail this to a friend

Printable version