While unsettling, the situation is more dangerous than that – it serves to undermine the security of the UK funds industry.
Last week the FSA issued notice of a firm passing itself off as being connected to the UK’s largest retail investment house, Invesco Perpetual. The FSA warned consumers to avoid a product called the Invesco Gold Precious Metals Fund which, while featuring website and email addresses implying connection to Invesco Perpetual, has nothing to do with the authorised fund group.
This isn’t an isolated incident. Not too long ago website addresses from a number of fund groups were highjacked, prompting people to assume they were connected to and dealing with the real company.
Well protected
While warning consumers against such schemes is the FSA’s responsibility – and is of course needed – the industry could stand having an equally high profile prompt about the safety and protections offered by funds. In a day and age when scams are rampant, collective investment schemes offer a high degree of protection from fraud.
Between ring-fenced assets and recourse in the form of the Financial Services Compensation Scheme, funds like unit trusts and Oeics arguably offer better security from fraud than banks.
Although Madoff certainly did much to scare investors about fraud induced losses in funds, consumers need to be reminded that was not a UK-based scheme. That is not to say the UK industry is without its share of scandals and shaky legitimate offerings; the Arch Cru debacle is likely an example of this.
Safety of assets
However, serious fraud incidents in UK funds are very rare. For example, the main one that springs to most people’s minds happened almost 15 years ago, the collapse of Peter Young’s Morgan Grenfell European fund. But even in that situation, investors didn’t lose out.
At a time when investors’ focus has moved to encompass investment provider risks as well as the products they offer, funds have a lot to offer. Unlike vehicles such as structured products, the legal design of funds means even if the parent company collapses, assets are safe. That is a highly attractive element of their construct the industry should do more with.
Bad news is easy to report and scandals and fraud certainly generate a lot of reader interest. However, as an industry we must remember the positives and work to communicate that better.
The offering of bogus investment products needs to be separated out from association with the real thing and to do that the industry needs to better highlight the security funds offer.
