Financial Supervision Authority issues precept to LHV-Seesam Varahaldus to stop illegal advertising of pension funds
In pension fund advertisements on its homepage www.lhv.ee, AS LHV-Seesam Varahaldus (LHV-Seesam Asset Management) violated provisions of the Investment Funds Act according to which information presented about funds must not be misleading or contain forecasts about the funds rate of return. Providing guarantees about the expected rate of return and predicting financial results is only allowed in the case of funds where the rate of return is actually guaranteed for the unit holder pursuant to fund rules.
The advertisement invited the investor to do a test to find a suitable second-pillar pension fund. On the basis of the test, a pension fund suitable for your personality type is recommended. The personality type lion was recommended the pension fund LHV World Equities (LHV Maailma Aktsiad), the personality type falcon the pension fund LHV New Markets (LHV Uued Turud), the personality type fox the pension fund LHV Balanced Strategy (LHV Tasakaalustatud Strateegia), the personality type owl the pension fund LHV Quality Bonds (LHV Kvaliteetsed Võlakirjad) and the personality type squirrel the pension fund LHV Dynamic Bonds (LHV Dünaamilised Võlakirjad). According to a statement about the pension fund LHV World Equities, a client of this fund whose assets have an expected annual rate of return of 8% will have to survive periods when the value of his or her portfolio temporarily decreases. According to a statement about the pension fund LHV New Markets, the expected rate of return of this pension fund is the best among LHV pension funds - about 10% a year. A statement about the pension fund LHV Balanced Strategy says that a potential client of this fund prefers to distribute risks and is content with an expected annual rate of return of about 6%. Information given about the pension fund LHV Quality Bonds presents this fund as showing the lowest expected rate of return of all LHV second-pillar pension funds - about 3% a year. According to the advertising material, a client of the pension fund LHV Dynamic Bonds is content with a lower expected rate of return of about 4-5% a year, but knows that there is a very low probability that the value of his or her pension fund units will decrease in the long term.
In addition to the second-pillar pension fund test, the rate of return of the voluntary or third-pillar pension fund LHV Supplementary Pension Fund (LHV Täiendav Pensionifond) was compared to a wild horse. The rate of return of LHV Supplementary Pension fund is advertised as moving upwards at a speed that only a wild horse could keep pace with - a fast and strong creature full of stamina, unreachable for everyone else.
The Financial Supervision Authority draws attention to the fact that the rate of return of pension funds managed by LHV-Seesam Varahaldus is not guaranteed and fund rules do not oblige the management company to achieve the rates of return advertised.
"Providing misleading information about a pension fund is regrettable. Management companies should feel more clearly responsible for maintaining the trustworthiness of the pension market as a whole, and in their marketing activities they should explicitly avoid giving information as to which the management company will actually not take contractual obligations in respect of the unit holder," said Andre Nõmm, head of the Business Conduct Supervision Division.