Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 540-559)



  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 compensate.

  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[23]. 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 marketing?

  (Mr Gilbert) Not only did we get it wrong, and there seems to be some sort of—Everyone 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.

Mr Plaskitt

  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 held to?

  (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 people.

  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 have operated?

  (Mr Gilbert) I do not understand the question.

  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 material—past performance is no guide to the future".

  (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 of—2.5 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[24]. 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 time—and you can look at it—you 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 are compatible.

  (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

24   HC 1089-i, Ev 1. Back

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