Justice at last for savers

Cheated and mis-sold Lehman savers have received welcome news of an FSA compensation scheme, says Malcolm Wheatley.

In the end, it was a lot quicker than many people had feared. Yesterday, just five months after announcing its joint 'wider implications' review with the Financial Ombudsman Service, the Financial Services Authority (FSA) announced its compensation plans for the Lehman savers lovemoney.com has been campaigning for.

They're the unlucky 5,600 or so investors who collectively lost about £107 million. They were mis-sold so-called 'structured investment products' that turned out to be backed by failed American investment bank Lehman Brothers -- even though the sales and marketing literature made no mention of this.

Stuffed with phrases such as "guaranteed", "100% capital secure", and "your initial capital investment will be returned to you in full", this marketing literature falsely promised investors the 'protection' of the Financial Services Compensation Scheme -- protection that in fact didn't apply, due to Lehman's non-membership of the scheme. And when Lehman's went bust last September, distraught investors found out just how hollow those words were.

Fleeced by advisors

With evidence like that, we've long felt optimistic that the FSA would find in savers' favour. And so it proved.

Yesterday, the FSA announced compensation plans for savers, as well as compulsory 'guidance' that firms must follow when dealing with complaints about the mis-selling of structured products.

For be under no illusion: these products weren't 'bought', so much as 'sold' -- with one 'adviser' pocketing £12,000 from selling £200,000 worth of structured products to a single individual. Many savers turned out to be inexperienced investors who had no idea that their money was going to be invested in a complex derivatives-based stock market fund.

What the FSA has done

How savers will be compensated -- and if they're compensated -- depends on which advisers sold them the products, and what level of mis-representation existed. Some people will get their money sooner than others -- some going through the Financial Services Compensation Scheme without making any complaint, others only after submitting a formal complain of mis-selling.

Here's how it will work.

Following the FSA's review of their promotional material and its subsequent discussions with the firms, three firms that sold Lehman-backed structured products have been put into administration. These firms are NDF Administration, Defined Returns Limited, and Arc Capital and Income plc. Savers who purchased Lehman-backed structured products through these firms may be entitled to compensation from the Financial Services Compensation Scheme, and the firms' administrators will contact savers about this. Arc's administrators are Carter Backer Winter LLP; the administrators for the other two firms are Grant Thornton.
Savers who bought from other plan managers and advisers will be contacted by the FSA and given detailed guidance on what to do and how to complain if they consider that they have been mis-sold to.
Crucially, the FSA is issuing these firms with a template that they should use to deal with these complaints. This outlines the criteria that the FSA expects them to use to assess the advice that they gave, in order to ensure investors are treated fairly and consistently. In short, if savers were mis-sold Lehman-backed structured products, the template will show that.
Separately -- and quite apart from any complaint by individual savers -- the FSA has referred three firms of advisers to its enforcement process as a result of the unsuitable advice that they offered. These and other advisers will be told to review past sales of Lehman-backed structured products and pay redress where appropriate.

Savers with NDF Administration and Defined Returns Limited can find out more at this page on the FSA's website, including likely timescales and details of telephone helplines. Savers with Arc Capital and Income should go here.

What we think

Obviously, the news is welcome. And it's what lovemoney.com has been campaigning for. But it's not everything we've been asking for.

For a start, there's no guarantee of compensation: the Financial Services Compensation Scheme will review each case on its merits, looking at the marketing materials used, and assessing the suitability of the advice given to the savers in question.

In the meantime, there will be a further worrying period of delay -- not to mention possible financial hardship -- while the review takes place. The FSA intends that the whole process takes no longer than six months. If that seems a long time, consider the plight of Equitable Life savers, still waiting for justice after almost ten years.

My guess is that many people will eventually emerge from the process reunited with all or most of their savings -- particularly those savers who bought through the firms that have been put into administration.

The delay -- not to mention the uncertainty -- is regrettable, but the outcome should be positive. Put it this way: for the savers concerned, it's likely to be the best news they get this year. And in that respect, Christmas has come two months early.

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More: Six thousand people lose their life savings | Ordinary people face big loss from Lehman collapse