HL Deb 30 June 1994 vol 556 cc857-9


Lord Lucas asked Her Majesty's Government:

Whether they consider that recent advertisements for fixed income investments by Norwich Union, General Accident and others are likely to mislead some unsophisticated investors, and in particular the elderly.

The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)

My Lords, the regulators have offered guidance to investment firms about advertisements for certain kinds of products, notably high income yielding investments. However, I will ensure that my noble friend's concerns about these advertisements are passed on to the appropriate regulators.

Lord Lucas

My Lords, I thank my noble friend for that reply. Is he aware that investments which offer 9 per cent. income fixed for six years, accompanied by such phrases as "a brilliantly simple way to keep up your spending power", are likely to mislead unsophisticated investors, particularly the elderly, into putting their capital at risk when they do not wish to do so? Is he also aware that the investment ombudsman and a large number of other commentators have noted that many such investors have been so misled? When he passes on my concerns to the regulators, will he add that the Government share them?

Lord Henley

My Lords, I think that it would be wrong for me to comment on any particular advertisement. As I said, LAUTRO, which is the principal regulating authority in this area, imposes a fundamental responsibility on all its members to avoid issuing advertisements which are either misleading or likely to be misunderstood. Certainly, if advertisements are found to be so misleading, then the members will be asked to undertake the appropriate remedial action. I can give the assurance to my noble friend that, where necessary, that would include providing compensation to investors.

Lord Boyd-Carpenter

My Lords, will my noble friend confirm that the elderly are not necessarily unsophisticated investors?

Lord Henley

My Lords, as one of the younger Members of this House, I confirm and thoroughly endorse what my noble friend says.

Lord Eatwell

My Lords, will the Minister confirm that the investment ombudsman has criticised those advertisements? Is that not yet another example of the lamentable free-for-all in the personal investments industry, particularly as it affects pensions and pensioners? Will the Government now commit themselves to establishing an all-party commission to agree a proper statutory framework of regulation, building on the Goode proposal for a pensions regulator? Only if the Government agree to do that will pensioners have any confidence that the Government are on their side and not on the side of those who are intent on separating them from their hard-earned savings.

Lord Henley

My Lords, the noble Lord is right in his first statement about the ombudsman. As regards what has been done, the noble Lord will be aware that in December last year LAUTRO issued a further enforcement bulletin providing its members with additional guidance on how high income and similar products should be marketed. That is what I was making clear in my original Answer. I am afraid that I simply do not go down the line that the noble Lord would wish; that is, of bringing in a system of statutory regulation. I believe that self-regulation works and that radical changes to the current system would mean massive costs and prolonged uncertainty. Undoubtedly, too, investor protection would suffer.

Lord Ewing of Kirkford

My Lords, does the Minister agree that if self-regulation works and the ombudsman has criticised the advertisements, the logical follow-on is that the advertisements should be withdrawn? Can the noble Lord tell the House, with confidence, that that is exactly what will happen?

Lord Henley

My Lords, what has happened is that the appropriate regulatory authorities have issued guidance on advertisements. They have said that appropriate remedial action should be taken if those advertisements are misleading. As I made clear, I myself am not prepared to comment as to whether or not any particular advertisement is misleading. I also made clear that LAUTRO has the power, where it is necessary and where people have lost out, to insist that those who have caused the loss should provide appropriate compensa-tion to investors.

Lord Eatwell

My Lords, the noble Lord says that the institution of statutory regulation would cause massive costs. Massive costs to whom? Is it not clear that the current voluntary system is causing massive costs to this country's savers, particularly our pensioners?

Lord Henley

No, my Lords, it is not. What I said was that radical changes would mean massive costs and would bring prolonged uncertainty. I said that undoubtedly investor protection would suffer. We believe that self-regulation works, and we will continue with self-regulation. That is why LAUTRO, in this case, dealing with fixed income investments, issued the advice that it did and made it clear that appropriate action had to be taken where some people had suffered.

Lord Stoddart of Swindon

My Lords, surely it is not simply a matter of self-regulation? The Government are loath, I see, to interfere. But they interfere with tobacco advertising. Agreement was obtained with the Government as to what constitutes good advertising practice in relation to tobacco. Will the noble Lord confirm that there is no reason why the Government should not intervene in the area we are discussing? Undoubtedly, people are being misled by advertisements which say in large print, "9 per cent. interest every year", and in small print, "This may involve the loss of your original capital". That is the kind of advertisement we are worried about. We believe that the Government should take action.

Lord Henley

My Lords, I honestly fail to see how tobacco advertising comes into this. As regards the substantive part of the noble Lord's question, I have made clear that LAUTRO issued further guidance on advertising. It said that advertising should not be misleading. It should, however, be made clear to the noble Lord that merely responding to the advertisement on the coupon does not itself represent a commitment to invest. The product literature sent out as a result of that kind of advertising is also subject to fairly firm rules laid down by the regulators. In addition, new product disclosure rules for life insurance-based products, which become mandatory in January next year, will include the requirement to include both risk warnings and cooling off periods.