The suitability of advice and any personal recommendation to a customer is vital when selling investment products . Unsuitable advice is the cause of many complaints about investments that we see.
Find out more about how to handle disputes.
Types of complaint we see
Businesses must only recommend investment products that are suitable for the customer. This is set out in the law and in regulatory standards.
Some examples of the types of complaints about suitability of investments we receive include:
- A business didn’t take reasonable care to make sure its advice was suitable.
- The investment product a business recommended wasn’t suited to the customer’s circumstances, for example their age or attitude to risk.
- The information a business provided about the investment product wasn’t clear or detailed enough.
What we look at
Sometimes a customer complains to us about the suitability of an investment they were advised to buy. A customer may complain about something like poor performance, which is actually masking underlying unsuitability.
How the investment performed doesn’t determine whether it was suitable, however. We consider suitability to be about a product matching a customer’s needs and circumstances.
When we receive a complaint about investments, we need to decide whether it was a suitable recommendation for the customer. We look at the evidence, consider regulatory standards and carefully investigate both sides of the story.
We’ll also take into account the customer’s own records and recollections.
We’ll then make an objective assessment based on all of the information and evidence.
When we receive a complaint about whether an investment was suitable for a customer, we’ll make a judgement based on:
The customer's circumstances
When investigating whether an investment was suitably recommended to a customer, we look at things like:
- personal circumstances
- financial circumstances
- level of debt
- financial requirements and objectives
- attitude to risk
- capacity to bear loss
- the amount invested
It’s important to consider the advice based upon the customer’s circumstances at the time you gave them the advice. If the circumstances have changed since you gave them the advice, it will only be relevant to our assessment if the change was reasonably foreseeable at the time.
Where there is a dispute about a customer's circumstances, we decide what the circumstances were most likely to have been, based on the available evidence.
If your records are incomplete or unavailable, we may reconstruct what the customer's circumstances were at the time of the sale from the evidence available. We’d take this evidence, as well as information about the investment product that was recommended, to decide whether your advice was suitable.
The features of the investment
When considering whether an investment was suitable for a customer, we’ll look at the features of the recommended product. The features we’ll look at include:
- the terms and conditions
- its flexibility
- the risks, including asset allocation and structural risks
- the duration of the investment (the term)
- the expected return
- the charges applied by your business
Investment product providers label their investment products in various ways. We don’t take descriptions at face value.
But we may uphold a complaint where the adviser has recommended a product that was unsuitable. In this case, this is because they’d failed to act with due skill and care when considering the features of the investment.
Sometimes there may be more than one investment that would have been suitable for the customer. But we don’t usually uphold a complaint just because there could have been other suitable recommendations.
Regulations and law that applied at the time
When looking at complaints about the sale of investments, we take into account the regulatory and legal standards that applied when the recommendation was made, making sure we don’t use hindsight.
Recommendations made before 29 April 1988
There weren’t any regulatory requirements, but legal standards still applied. If a business made a recommendation, it had to advise with reasonable care and skill.
Complaints about sales made before 29 April 1988 (also called A Day) aren’t common now. The majority of complaints are about sales of mortgage endowments .
The same legal standards continued to apply to recommendations made after 29 April 1988. But because the regulations in place since then have created responsibilities that are at least as demanding as those standards, we usually only refer to the regulatory requirements when looking at recommendations made after 29 April 1988.
Recommendations made between 29 April 1988 and 30 November 2001
There were a number of regulators during this period but the regulatory requirements were broadly the same. Businesses had to provide ‘best advice’, meaning they had to find out the consumer's circumstances and needs before making a recommendation, and recommend only suitable investments.
From 1 December 2001
The Financial Services Authority (FSA) became the regulator on 1 December 2001 and The Financial Conduct Authority (FCA) then took over on 1 April 2013. The rules have broadly continued the requirements for businesses to ‘know your customer’ and to recommend suitable investments.
Although the regulatory requirements at the time of advice can sometimes have a direct bearing on the outcome of a suitability complaint, the issues we consider are largely common to all the sets of rules issued since 1988.
Information recorded by your business
Financial businesses must record information at the time of making the personal recommendation about an investment. This information helps us in an investigation.
An example of this information is what the customer told you about their attitude to risk.
When we assess a complaint, we give more weight to written attitude to risk statements if they are:
- completed at the time of the sale
- clear and unambiguous
- expressed in terms that the customer was likely to understand
- signed by the customer – but this isn’t a deciding factor
The descriptions businesses use to describe their customers’ attitude to risk vary significantly. So we’re very careful when considering cases that involve broad descriptions, for example, ‘low risk’.
In some cases, the customer's actual attitude to risk at the time may have been different to the attitude recorded. For example, if the customer had modest financial means, little investment experience and a need for stable income in future, it’s difficult to square that with a recorded attitude to risk of ‘adventurous’.
In cases like these, we’ll consider:
- the customer's understanding of the investment product
- what the adviser told them
- how the attitude to risk scale was explained
But if there’s a clear record from the time, including the reasons why the investment risk was suited to the customer, and we’re satisfied that you explained everything clearly, it’s unlikely we’d decide the customer had a different attitude to risk from the recorded one.
Information your business provided about the investment
Transparency isn’t the same as suitability. Providing customers with product literature explaining the features and risks of an investment doesn’t absolve you from responsibility if the product was unsuitable.
Customers are entitled to rely on the advice they receive. They can’t be expected to second guess personal recommendations given to them by an adviser.
But clear, personalised documentation directed at the customer can be persuasive evidence that the personal recommendation was suitable.
For example, when investigating a complaint, a ‘suitability report’ or ‘reasons why’ letter might persuade us that the customer was prepared to take the risks associated with the investment. That’s because the risks were clearly explained in terms that the customer could understand.
If the customer was investing a significant amount, we’ll look at whether the business considered diversification (spreading the investment across a range of products or areas) when we consider whether the recommendation was suitable. Whether the amount is significant is likely to depend on:
- the customer's circumstances and objectives
- the amount invested
- whether the customer had other investments or savings.
Handling a complaint like this
You’ll need to gather evidence such as recorded conversations and reports if we investigate a complaint a customer has made about an investment product you sold them.
Evidence you provide us, as well as information about the investment product that was recommended, will allow us to reach a decision.
Find out more about how to resolve a complaint.
Putting things right
If we conclude that the recommended investment wasn’t suitable, we’d usually uphold the complaint and consider telling the business to pay redress.
Redress puts the customer back into the position they would have been in if they hadn’t been unsuitably advised.