Thousands of savers who lost more than £100m in investment plans backed by the failed banking giant Lehman Brothers may be in line for compensation after the City watchdog ordered financial advisers to look at their cases.
The investors had all put money into so-called structured products, which promised to return at least their initial stake at the end of a set term, as well as providing possible additional returns linked to the performance of underlying investments. However, while advisers often marketed the products as "protected" or even "guaranteed", savers were actually dependent on the financial institutions underwriting the schemes. In the case of products underpinned by Lehman, the guarantees turned out to be worthless.
Yesterday, the Financial Services Authority said it believed many of the plans were mis-sold. The City regulator said most of the products had been sold via independent financial advisers – more than 5,000 savers bought plans backed by Lehman – but that in many cases there were "significant failings". More often than not, savers were not given any warning that their money could be at risk.
Some 4,000 savers have already sought redress from the Financial Services Compensation Scheme, which pays out when financial advisers or product providers go under. But the FSA said advisers would now be required to examine the guidance they gave to savers who bought the plans, and to compensate them for any losses if there had been failings.