FSA warns investors over Connaught Income funds

The FSA has advised investors in Connaught funds (Series 1 and 2), offered by Connaught Asset Management, to consider speaking with their financial adviser or stockbroker to ensure the investment is suitable.

It says the funds have been advertised as low risk and could be misleading to investors.

The FSA says: "In the literature we have seen, the Connaught funds are described as ‘very low risk' and ‘low risk'. It makes comparisons between investing in them and putting your money in high street bank and building society accounts. We believe this is misleading."

"Connaught's marketing material compares the returns on its funds with fixed-rate notice bank and building society accounts. However, customers need to be aware that these bank accounts have stronger investor protections should anything go wrong and offer lower risks to your money than there is investing in the Connaught funds.

"Furthermore, these funds offer a quarterly ‘fixed income payment'. Although, the probability of you receiving this payment depends significantly on the performance of the investments within the funds. We believe this is not explained well enough to investors."

The FSA adds that Connaught also offers an "additional guarantee on the income" within the funds, but it says it is unclear if investors would be able to understand what this guarantee is.

The warning affects consumers who are considering investing, or have invested in the Connaught funds, whether directly, though a Self Invested Personal Pension (SIPP), Small Self Administered Scheme (SSAS), an investment bond or an offshore investment bond.

Reacting to the warning, Mike Davies, chairman of Connaught Asset Management, said: "Connaught whole heartedly supports the role of the FSA in protecting the consumer and we welcome this feedback on our Fund documentation.

"Connaught has always taken the clear disclosure of risk as well as benefits very seriously and to this end engaged the services of specialist legal advisers to review its documentation and processes before the launch of each Fund.

"We firmly believe that all financial advisers have sufficient information within our documentation and from the series of seminars we ran recently to ensure they can advise appropriately on our products.

"However, we take our role as a prudent Asset Manager very seriously and we will be conducting a further review of our documentation immediately.

"We encourage all financial advisers to engage with us before using our products, or in the after sales environment, and we would welcome those advisers contacting us if they have any concerns as a result of this Consumer Notice."