The FSA says that literature relating to the funds – the Connaught Income Fund, Series 1 and Connaught Income Fund, Series 2 – makes “misleading” comparisons with returns available from bank and building society accounts.
“Connaught’s marketing material compares the returns on its funds with fixed-rate notice bank and building society accounts,” the FSA said in a statement.
“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.”
The regulator adds that the material does not adequately explain to investors the fact that the funds’ “fixed income payment” depends significantly on the performance of the funds’ investments.
“Connaught also offers an ‘additional guarantee on the income’ within the funds, but it is unclear if investors would be able to understand what this guarantee is,” the FSA statement adds.
It adds that investors in the funds should consider speaking with their financial adviser or stockbroker to ensure the investment is suitable.
Responding to the notice, Connaught AM chairman Mike Davies said that "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."
"Also, we must emphasise that these funds are designed for sophisticated and expert investors only and it has not been, nor will it ever be, our intention that they be promoted to any other category of investor, either through advisers or directly, as from the information we provide they clearly would not be suitable for a retail type of consumer."
"However, we take our role as a prudent asset manager very seriously and we will be conducting a further review of our documentation immediately."
