DBS fined £100,00 for misleading advertising on ISAs

DBS Financial Management was yesterday fined £100,000 by the Financial Services Authority for misleading advertising that failed to spell out investment risks to customers.

The financial advice group, part of the software company Misys, sent out a 24-page colour brochure entitled "Protected ISAs" as an insert in 4.5 million copies of national newspapers in June 2001.

The FSA yesterday said the brochure, which promoted ISAs that protect investors' capital, failed to present a balanced picture of the investment and the risks the complicated product entailed.

The brochure claimed it provided "100 per cent capital security over five years" when in fact an investor's money was only guaranteed at the fifth anniversary of the investment.

It also claimed on the front cover of the brochure that the investment had "no initial charge" when this was not the case. Investors were led to believe they had access to higher growth rates than were in fact possible from the product. DBS also used highly optimistic projections of stock market returns, up to 23 per cent, which were far in excess of the projection rates allowed on ISA investments.

The costs of buying financial instruments to protect investors' capital was not made clear in the brochure, nor the effect the costs had on reducing returns.

The regulator yesterday said the penalty would have been much higher had DBS not already overhauled its advertising procedures and offered the 455 investors who responded to the advertisement their money back.

"We require financial advertisements to be 'clear, fair and not misleading'," Carol Sergeant, managing director at the FSA, said yesterday, saying DBS's brochure did not "come close to meeting this standard".

Misys, which bought DBS in August 2001, yesterday blamed DBS's previous management for the lapse in advertising standards. "The FSA is fining DBS based on the contravention of regulatory rules by the previous management team, who have moved on elsewhere. It is very surprising that former management failed to improve procedures adequately," Steve Pearson, DBS's managing director, said.

Ken Davy, the founding chairman of DBS who made £7m from the sale to Misys, now runs another adviser network, Simply Biz.

The FSA also censured DBS for failing to have robust procedure for checking that its advertising material met the regulator's standards. The person in charge of advertising compliance was not qualified to do the job and was unfamiliar with the product.

The fine was the first the FSA has issued to a business for advertising failures. It is investigating claims that split-capital investment trusts were marketed by both financial advisers and fund managers as low-risk funds, when they were in fact highly geared to the volatililty of the stock market.