Examination of Witnesses(Questions 540-559)|
TUESDAY 29 OCTOBER 2002
540. I would rather you did answer it.
(Mr Gilbert) If we are found, as the
Chairman suggested, to have mis-sold zeros to anyone, we will
541. But you are saying that you do not believe
that you have mis-sold any zeros, other than the ones
(Mr Gilbert) I think there is a big distinction
between the wrapper products that we have. You could take a PEP
or an ISA as a good example, as Piers suggested. It is a similar
situation if your stockbroker sold you a PEP and advised you to
buy Marconi and you lost all your money. What you were saying,
or what the Chairman was saying, was that he should be compensated
for the loss in Marconi. What I am actually saying is that we
advertised Progressive Growth and put a low risk warning on it.
We badged it as low risk, and that is where we feel a certain
obligation to the unit holders. At the time it was low risk. We
can produce reams and reams of evidence showing that it was low
risk at the time. It is an unfortunate set of events and we are
very sorry that people have lost money in this product but that
is why we are going for this uplift package, and we are the only
people so far that are prepared to step forward and do that.
542. Mr Fishwick, if you, instead of retiring
from this sector, were obliged for some reason to stay on to serve
out time, what lessons that you might have learnt over the last
couple of years would you draw attention to, and how would your
behaviour in managing some of these trusts and dealing with retail
investors differ from that over the last couple of years?
(Mr Fishwick) I think quite clearly we
have all learnt lessons, and if we have not, then we should have
done. One thing that has come across to me more than I perceived
at the time is that investment trusts are all about confidence
and I am surprised how the confidence in the sector has been damaged
so much and therefore made many investments trade below their
assets and caused them to have difficulties with their banks.
I have learnt a lot about the crisis of confidence which I did
not see before and should probably have seen coming earlier. I
just did not believe you could have a situation where no investor
will now almost buy any split capital trust. So by nature their
prices are falling because everyone is a seller. Everyone wants
to have a AAA rating and not own any other split capital trust.
543. Do you believe there are any lessons to
be learnt in terms of the marketing of these products to less
sophisticated retail investors?
(Mr Fishwick) I think the lesson that
has been learnt by the City is very simple, that we seem to be
in a situation where we are championing the consumer, and rightly
so, and the truth of the matter is that you probably ought to
put no risk warning.
Every fund manager in the City wants his marketing department
now to put on "high risk" because he does not want to
get caught from them all. I think the lesson I have learnt is
that there needs to be a mass educational programme for investors
on all kinds of products. I am staggered how little people understand
about their money, be it their pension, their endowments or their
investments. I thought we knew a bit more. I think a huge educational
programme needs to be done. I do not know how it is going to be
done or who will do it, but it is very sad. It is awful when people
lose money without understanding why they have lost it.
544. Do you not think, as a final question,
that there is something that you lot could learn in terms of the
way in which you market these items to investors, not least because
you are now paying compensation as a consequence?
(Mr Gilbert) We are not paying compensation,
Mr Laws. We are voluntarily coming forward with an uplift package
on a product that we marketed as low risk.
545. Because you got it wrong in terms of the
(Mr Gilbert) Not only did we get it wrong,
and there seems to be some sort ofEveryone got it wrong.
546. I am trying to find out what lessons you
have learnt, Mr Gilbert. That is what I am asking you.
(Mr Gilbert) I suppose, if we got something
wrong, we would not badge it low risk again.
547. Really what you are saying to us is that
it is the punters' fault.
(Mr Fishwick) No, not at all.
548. Mr Gilbert, if you hear an advert on the
radio for a financial product, a savings or investment product,
there is a pretty standard disclaimer at the end of the advert,
is there not, which goes something like, "Past performance
is no guidance to the future"?
(Mr Gilbert) Yes.
549. Is that the maxim that Aberdeen has always
(Mr Gilbert) The disclaimers were on
every product we produced, but the problem is that you can argue
that the disclaimer is there, and legally our adverts stand up,
which is why we have come up with the voluntary package. As I
say, if we are found to have mis-sold a product, we will compensate
550. But in your own management decisions in
running these funds, have you always held to that maxim?
(Mr Gilbert) That markets can go down
as well as up? Yes.
551. No, that the past performance is no guidance
to the future? Have you held to that maxim in the way that you
(Mr Gilbert) I do not understand the
552. Really? It is fairly straightforward I
think. As I say, "I think it is a requirement when you are
promoting a financial product that there is that disclaimer on
the advertising materialpast performance is no guide to
(Mr Gilbert) To future performance.
553. To future performance. What I am asking
is whether you have operated consistently with that maxim in decisions
you have made in running Aberdeen?
(Mr Gilbert) Yes, I think so. Past performance
is no indicator of what is going to happen in the future.
554. So you have acted consistently with that
maxim, and yet when you submitted a memorandum to us in July of
this year, you said under the paragraph headed "Risk Profile":
Fund managers, investment bankers, lawyers, advisers, etc., all
worked to a common assumption that some form of equity market
growth could be expected from equity markets in each succeeding
year. Is that consistent with the maxim about "the past is
no guide to the future"?
(Mr Gilbert) Yes, it is.
(Mr Fishwick) Can I take that one because it is interesting.
I think if you believe that you learn nothing from history, then
maybe that is the case. What you have to remember is that when
you look at, let us say, your pension scheme, which is a perfect
example, it is the biggest investment for the majority of people.
If they have a money purchase scheme rather than a company scheme,
they get a statement probably once a year, probably six months
after the year-end date, and it says this very simply: "On
our current growth assumptions", which are way higher than
any splits ever use, "you will receive 27 per cent of your
current salary entitlement". They do not say to you, "If
these assumptions are not made and if we put in an assumption
of2.5 per cent per annum, you will probably end up with
your pension being worth one week's salary"?
555. I am looking for operating principles here
and you are very specific in the memorandum you give to us: "Some
form of equity market growth could be expected in each succeeding
year". Is that not an amazingly rash assumption to work on?
It is a very specific statement. You made it to this Committee.
(Mr Gilbert) There have not been three
down years in the stock market for 80 years.
556. Let us explore this a bit further. You
submitted this memorandum to us on 1 July 2002.
Let us look at your website which was up also for July 2002, exactly
the same time. You are submitting that memorandum to us saying
that that is your operating principle and on your own website
at exactly the same timeand you can look at ityou
posed this question: "Was there overconfidence in the sectors
that splits were invested in? Answer: The rise of equity values
during the 1990s may well have led to sector overconfidence about
continuing growth rates going forward". Is that not totally
contradictory to what you told us was the working assumption and
the memorandum supplied at the same time?
(Mr Gilbert) I do not believe so.
557. I do not understand how the two statements
(Mr Currie) Looking at the same time
period and with the benefit of hindsight, what you saw was double
digit equity market returns happening to the Nineties, which,
to a whole generation of fund manages and analysts and others,
led to the belief that equity markets would continue to rise.
I am not alone in this. Governments believed equity markets would
rise during the period. With hindsight, looking at ratings now,
it appeared that that assumption that it would continue at that
rate of growth was wrong.
558. Hindsight is always helpful, but you are
investing other people's money and you are trying to act responsibly
with it and behave responsibly to them. It appears that your operating
principle was, and it is in your memorandum, that you were working
on the assumption of equity market returns year-on-year-on-year.
(Mr Gilbert) Are we not speaking about
the models being based on that assumption?
559. I am sorry?
(Mr Gilbert) I am trying to find the
part of our submission where this point is.
23 Note by Witness: in other words, no financial
product provider will put low risk on any product ever again. Back
HC 1089-i, Ev 1. Back