Examination of Witnesses(Questions 380-399)|
TUESDAY 29 OCTOBER 2002
380. Mr Gilbert, in your evidence to us on 11
July in response to a question from my colleague Mr Plaskitt,
and I refer to Question 26, evidence page 19, you told us that
the only fund you retailed directly to the public was a unit trust.
Is that correct?
(Mr Gilbert) That is correct, Chairman.
381. Did you operate regular saving schemes
and ISAs which were regulated by the FSA and were available to
(Mr Gilbert) Yes, we did, Chairman, but
382. Did these schemes allow the public and
advisers to purchase the individual shares, including zero dividend
preference shares, in each split capital investment trust managed
(Mr Gilbert) Yes, they did, Chairman.
383. And did these schemes carry features documents
as required by the FSA?
(Mr Gilbert) Yes, they did, Chairman.
384. And if they did, in a risk section required
by the FSA, did you make it clear that these shares described
and promoted by yourselves as low risk carried the possibility
of total loss?
(Mr Gilbert) Chairman, I defer to my
colleague Mr Currie on that point.
385. Well, we have a lot to do this morning,
Mr Gilbert, so I have asked my colleagues to be sharp with their
questions and if you could be sharp with your answers, we would
(Mr Currie) Yes, referring to the wrapper
products which cover Share Plans which are a low-cost way for
people to buy securities and individual shares, the 42 shares
were trusts managed by Aberdeen. The risk document in the back
complies with all the standards set out in compliance departments
about outlining the risks attached to each security.
386. Okay, so I will ask the question again.
Did you make it clear that these shares described and promoted
by yourselves as low risk carried the possibility of total loss?
(Mr Currie) Well, there are two answers
to that. We did not describe it as low risk exclusively in that
documentation and, no, the documentation did not say that total
loss was an expected element of that.
387. Well, I think you did describe it as low
risk. However, the fact is that you did not describe it as carrying
the possibility of total loss. Do you not accept then that the
zeros of each of your split trusts were in fact made available
and retailed by yourselves direct to the public through share
schemes and ISAs using promises of low-risk characteristics and
lacking any warning that investors could lose all their money,
as has happened in some cases?
(Mr Currie) I think there are two points
in this, Chairman, which I would like to point out. One is that
investment performance itself is something which is independent
of the literature and the second one is that the risk warnings
that were in the literature at the time described the risks that
388. I will tell you what I am trying to get
at. I went to your website and on your website you have ISAs and
PEPs and you have your split trusts there. Under where you can
purchase ISAs and PEPs, your answers regarding Aberdeen development
capital, European Growth and Income Trust, Jersey Phoenix Trust,
et cetera are yes, so the public could buy zeros from your split
trusts because it is on your website and you are telling people
(Mr Currie) That is correct.
389. So, therefore, the answer to the question
to Mr Plaskitt, when you said you only did it through your unit
trusts, is not the case, Mr Gilbert?
(Mr Gilbert) I do not accept that. There
is a big difference between retailing a product, which we did,
and being a unit trust and an execution-only type wrapper product
which was to allow people to buy shares on a cheaper basis than
they could themselves.
390. I do not understand, Mr Gilbert, because
the fact is that people can go to your website and buy zeros through
that. Really the question I am getting to is this: there are a
number of people who have been on to us regarding compensation
and you are looking, you say, at a compensation for your unit
trust. Is that correct?
(Mr Gilbert) That is correct, Chairman.
391. So if it is good enough for those buying
direct through AAM for your compensation scheme, why should not
others who have bought direct, through a stock broker or in another
way, why should they not be compensated? Why is it then down to
an accident of where people bought the shares?
(Mr Currie) I think the answer is that
there is a difference between an equity and a collective investment
scheme and what you are buying is a share, an individual share,
and the information on that share describes what the characteristics
are of that share and the risks within it. Otherwise, the alternative
to this is that every equity investment in the land that is available
through any type of wrapper vehicle has fundamentally got to be
underwritten by either the companies or by the management.
392. But you offered it through your website.
(Mr Currie) No, you can actually get
the information through the website and
393. On your website it says yes, yes, that
people can buy it.
(Mr Currie) I am afraid they cannot buy
through our website, Chairman, but if you look at our website,
you will find you can get the literature in which you will read
the risk documentation
and you cannot buy
394. Well, I am going to subject this to further
investigations through other people because what you are doing
then is you are misleading people. If you put on your website
that you can buy it through ISAs and PEPs
(Mr Currie) You cannot buy through the
website ISAs and PEPs.
395. Exactly, so you are promoting zeros, therefore,
why are you just concentrating on the unit trusts and not on the
(Mr Gilbert) The answer, Chairman, as
to why we are concentrating on the unit trust is that we marketed
that as a low-risk product, Chairman, and whilst we can look at
the marketing literature we produced for the unit trust and legally
it stands up and everyone at the time thought they were low risk,
we have taken the view that we are not happy with the performance
of that fund. Therefore, we are proposing and are still committed
to an uplift package for all the people who have bought our unit
trusts, not just those who have bought directly from us, but everyone
who has bought, taking your point, regardless of how they bought
it, either through an IFA, direct or off the page.
396. So you did not promote your splits as low
(Mr Gilbert) We did not put
397. Let me tell you, you have an advert here
and I was surfing the Net the other night, or last week actually
because I put it to Mr Tiner, and we have Weekend Money in
The Times of Saturday 11 September 1999 where you say,
"Zeros offer investors steady, quasi-guaranteed annual growth.
Zeros are low-risk investments similar to bonds. Now you are able
to invest in a portfolio of zeros with the new enhanced zero trust",
and the enhanced zero trust is a split, so you have marketed as
low risk your splits.
(Mr Currie) It is the Share Plan actually
that has been marketed, Chairman.
I very much doubt you saw that on the Internet and if it is on
the Internet, I would like to be notified because it should not
be and an advertisement appearing one-off in The Times
398. Sorry, this is The Times. It is
not on the Internet, but a copy of The Times.
(Mr Currie) Sorry, you said that in surfing
the Internet, you saw this advertisement
399. Well, this was in a copy of The Times.
Mr Gilbert, I think you can correct him on that.
(Mr Currie) Well, one insertion in The
Times in September 1999 at the time when the zero market was
deemed to be low risk by all measures of standard deviation used.
1 Note by Witness: The characteristics of each
zero dividend preference share is described in the Share Plan
documentation as well as Risk Factors in Key Features documents
(requirements as per PIA Rules Part L:V), which have to be read
before investing. Back
Note by Witness: Extract, AITC Fact Sheet on Savings and
Investment Schemes: "Buying through a Savings Scheme does
not imply that the investment is suitable for everyone. The usual
principles of risk/reward apply to investment trust shares bought
through Saving Schemes. Some investment trust shares will be riskier
or more volatile than others . . . whether you use a Savings Scheme,
or any other method to invest in investment trusts, remember you
are buying shares." (Source: www.about-savings-accounts.co.uk). Back
Note by Witness: AITC Fact Sheet on Savings and Investment
Schemes: "The majority of investment trusts are included
in such schemes . . . known generically as Savings Schemes, they
may also be called "share plans" or "investment
schemes" to indicate they are not solely for regular savings.
Saving Schemes are low-cost, easy to use, and flexible." Back
Note by Witness: Investment trusts are public investment
companies whose shares are listed and traded on exchanges. Back
Note by Witness: There is no direct dealing or buying facility
for investment trusts through the Aberdeen Asset Management website.
Prospective investors looking to invest through the Aberdeen Plans
have to read the Share Plan literature and Key features, sign
declarations and return the completed application form in hard
copy form to the plan manager. Back
Note by Witness: EZT plc is not a split capital trust but
a conventional investment trust that is geared and invests in
zeros. "Because investment trusts are not authorised businesses
under the Financial Services Act, these advertisements will be
placed by the management companies rather than the trusts and
will promote the wrapper products," Section 7, Chapter 11,
AITC Handbook for Directors. Investors receive the full Share
Plan documentation on responding to the advertisement. In this
advertisement, zeros are generically described as "lower
risk investments similar to bonds". The coupon on the advertisement
in question states "Please send me the Aberdeen Investment
Trust Share Plan and Zeros Fact Sheet". The body copy states
that the trust "is available through the Aberdeen Investment
Trust Share Plan." The health warning explains that investors
may not get back the amount originally invested. Back