These investments will be for a fixed term, usually three to six years. At the end of the term, customers will at least get back the money they put in. They could also get a return, interest or bonus, depending on the performance of indices, shares or another similar measure.
There's a large range of these products with varying levels of complexity in terms of how returns are calculated. Returns depend on how the stock market index (or other measure) performs.
Types of complaints we see
It's usually the performance of a product or the suitability of advice that triggers a customer to complain.
Some examples of the kinds of complaints we receive include:
- The product wasn’t suited to the customer’s circumstances
- The literature provided by the bank wasn’t clear
- The customer says that they wouldn’t have invested in the product if they’d known the return would be as low as the one they received
- The risks weren’t properly explained to the customer
- The sale was suitable but the amount invested was too high
What we look at
In complaints about capital protected structured investments, we’ll consider:
- the customer’s investment experience
- whether the customer understood there was a risk they’d get little or no return
- whether you adequately explained the risks (referring to the sale literature isn’t usually enough)
Sometimes the performance of a product triggers a customer to complain, either because it performed poorly or not to their expectations. They might say that, if their investment performed poorly, the advice to take out a structured investment was unsuitable. If that's the case, we’ll deal with the complaint in the same way we’d approach any other investment suitability complaint.
Suitability of the advice you gave
The fact that the capital was protected on maturity doesn't automatically mean that the advice was suitable. The product carries the same risk as the underlying index, except that the capital is protected.
A customer may say they’re unhappy with the returns from the investment. The reason could be that they think you provided misleading information at the point of sale.
Whether the advice was suitable depends on the circumstances of each case, but we will look at factors including:
- whether the customer wanted capital protection
- the customer's attitude to risk
- how much was available to the customer to invest excluding anything needed for emergencies and other requirements
- was too much invested
- where the investments were made
- the customer’s investment objective
- if the customer understood the way the product worked
- whether the customer had invested in similar products before
- whether the customer could afford to lock up their capital for the period of the structured deposit
Read more about assessing the suitability of advice you gave about investments.
Assessing the customer’s attitude to risk
Even though the capital was protected, the return is usually linked to some indices, or a basket of shares, whose performance can fluctuate. The risk exposure can therefore be similar to investing directly in the asset classes the indices represent.
As the value of the indices can go up or down, there's a risk that the customer may get little or no return at the end of it. So, investments have a higher risk than a fixed deposit, which guarantees return of capital and a rate of interest.
We’ll consider whether:
- the risk was appropriate to the customer
- whether they understood the risk
Sometimes, we may find the customer wasn't looking for capital protection at all. They might have taken some risk for the chance of higher growth, but were then tied into this product for a few years with the potential for little or no return.
The investment amount was too high
Sometimes we find that the sale was suitable but the amount invested was too high.
So, we may consider it was unfair to lock in a high proportion of the customer's funds to a single investment. This could expose the customer to the risk of no return on a sizeable proportion of their assets for five to six years.
Even if we consider that the product was generally suitable and that the proportion was reasonable, we’ll need to consider:
- what steps you took to ensure the customer understood how the product worked
- whether you made the inherent risks clear to the customer
We might be able to tell that the customer didn’t understand how the product worked. We could decide that they may not have opted for it (or they might have only invested a small amount) if they’d realised:
- the complex way it worked
- the high risk of obtaining little or no return
We’ll look at whether this was a good investment for the customer compared with the other options available. We’ll bear in mind a higher or additional-rate taxpayer would pay 40% or more of the return in tax. We’ll also look at whether you highlighted this.
If the product was sold to a non-taxpayer, we’ll consider whether they would have invested had they been aware of the tax implications, for example, being pushed into the basic rate tax bracket.
If the customer surrenders the product before maturity, they may not get all their capital back (even though these products are designed to return the capital on maturity).
If it's clear from the fact find (information gathered about the customer’s circumstances) or other information that the customer was – or could have been – in need of capital for other purposes before the end of the term, we’ll look at whether it was good advice to expose the customer to surrender penalties.
If you tell us that the products were sold on a non-advised basis but the customer says they received advice, we’ll look at exactly what happened. For example, we’ll see if you led the customer into buying the product in any way. And if you did, we’ll investigate whether the product was fully explained and based on the customer's circumstances.
We'll also need to consider:
- the circumstances under which the sale took place
- the available evidence from the point of sale
If we decide you did provide advice, then you’ll have had a responsibility to make sure the advice was suitable.
What we need to consider depends on the complaint. For example, if the customer complains that the literature you provided was misleading, we’ll look at why the customer may have said that, the complexity of the product and whether:
- we agree
- the customer was experienced enough to understand the literature
And also whether the literature clearly explained:
- the way the return is calculated
- the maximum potential return
- features like averaging, management strategies and the impact of these features on performance
- the risks carried by the underlying indices
- what would happen at the end of the term
- any charges or surrender penalties
Handling complaints like this
We only look at complaints that you've had a chance to look at first. If a customer complains and you don't respond within the time limits or they disagree with your response, then they can come to us.
Find out more about how to resolve a complaint.
Putting things right
Where a complaint is upheld, we’ll apply our usual approach to fair compensation. Read more about compensation for investment errors.
Bank advises customer suitably despite low return