Compensation for investment complaints
If we decide that you will need to pay compensation to a consumer, the amount you will need to pay will depend on a few different factors.
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Interest calculator
To calculate interest on a sum at base rate plus one percentage point, use our interest calculator.
How we award compensation for unsuitable investment advice
When we award compensation, we try to put the customer in as near as possible the position they’d be in if the business had instead given suitable advice. What’s right for the customer will depend on the circumstances of the case.
With investment suitability complaints, it’s likely we’ll set this out as a formula because we often can't identify exactly which investment the customer would have taken out if they’d been given suitable advice. This is also called a 'formulaic award'.
When we make a formulaic award, you should work out the compensation in line with the approach we've set out.
In these cases, we’ll often tell you to use a measure such as a published benchmark or index. We’ll choose one we think broadly reflects what we know about the customer’s circumstances and aims at the time of the advice.
Any benchmark must take account of the particular circumstances of the case and should be a reasonable reflection of the amount of money the customer would have made or lost if they had been given suitable advice.
If we’re calculating compensation for an active investment, the amount we award will usually take into account the current value of the investment.
You need to pay compensation within 28 days. If you don’t, we may tell you to pay the customer interest for the delay.
If at the time of the advice you discussed alternative investments with a customer, we may decide that one of the others discussed would have been suitable. In that case, we may tell you to pay compensation based on a comparison with that other option. Or if the invested money came from an investment the customer already held, we may award compensation based on them having retained it.
If we uphold the complaint and the customer still holds the investment, we'll usually tell you to work out any compensation to the date of settlement. If the customer then decides to keep the investment after that, it is the customer’s responsibility.
Examples of the benchmarks we might use if the customer had invested differently
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We'll usually tell you to compare the performance of the recommended investment with what the customer would have got if the return on the investment had matched the average rate for one-year fixed-rate bonds (as published by the Bank of England).
This doesn't mean that we necessarily think the customer would have invested only in this type of bond. Rather, the benchmark's intended broadly to reflect the sort of return a customer could have obtained with little or no risk to their capital.
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Where the customer was prepared to take some risk, for example, by investing in part in the stock market, we'll probably tell you to compare the performance of the actual investment with the return the customer would have got based on (for example) the FTSE UK Private Investors Income Total Return Index. This index reflects a broad asset allocation covering equities, fixed income, cash, property and other investments.
If the investment was purchased before 1 March 2017, we'll likely base compensation on the precursor to this, the FTSE Wealth Management Association Stock Market Income Total Return Index.
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If we think the customer wanted to take a low, 'cautious' level of risk, we'll probably tell you to make a comparison with the return the customer would have got from a 50/50 combination of the two benchmarks described above.
But, again, this doesn't mean we assume that 50% of the money would have been invested in cash and 50% in some kind of index tracker fund. Rather, we consider this a reasonable compromise that broadly reflects the sort of return a customer could get from taking a lower risk, cautious approach with their money.
Handling compensation – what you need to do
Where we tell you the basis on which to pay compensation, we won’t generally check the details of the calculations you subsequently carry out.
The outcome we give will tell you what you need to do. Performing the calculation might involve asking for some additional information. If it involves getting hold of an up-to-date value on an investment you’re no longer advising on, you can:
- ask your customers to can contact the investment provider to get the information you need, or
- give their authority for you to do so.
The same may apply if you need information on income payments or withdrawals.
It’s important that you look carefully at the calculation we’ve set out when we first put it in writing to you. If there’s any part of it you don’t understand, let us know. It’s better to sort it out before there’s a final decision. We want to be sure both parties understand our award. If you think it’s unclear, we might be able to reword something or set it out in more detail.
We know that working out compensation calculations can be complex at times. However, there is software commercially available for benchmark index and interest calculations. Bear in mind you’ll need to pay any costs you incur for the calculation of compensation.
Once you’ve worked out the final amount, you’ll need to send a copy of the calculation to the customer. It must be set out in a way that's easy for them to understand.
For businesses that receive few complaints, it may be easier to pay a company to do the calculations. Professional membership bodies – like the Personal Investment Management & Financial Advice Association (PIMFA) or the Institute and Faculty of Actuaries – might be able to help you with suggestions on who to use.
Making it easy for the customer
It’s really important that customers understand how things will be put right for them.
We realise that they might not be able to do some complex calculations themselves. So, we’ll always explain the principle behind the calculation to customers so that they can understand what’s involved.
Working out compensation for specific investment complaints
There are some features of cases for which we already have an established approach.
The following sections are designed to help you understand in more detail our approach to calculating compensation for investment complaints.
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If we uphold a complaint, we may tell you to compensate the customer for being ‘deprived’ of money they should have received from the proceeds of an investment.
The compensation is usually in the form of interest payable from the date the loss crystallised up until the date the award is paid to the customer.
The interest might be subject to income tax, depending on your customer’s tax position. If you consider that the law requires you to deduct income tax when you pay interest, we expect you to:
- tell the customer how much tax you’ve deducted, and
- provide a tax deduction certificate, if asked, to allow them to reclaim the tax from His Majesty’s Revenue & Customs (HMRC), if appropriate.
The rates of interest we award take into account:
- what the customer is likely to get after tax
- what it would otherwise have cost to borrow the money during the period the customer was deprived of it.
If the investment still exists, we’ll usually expect you to add interest from the date of our decision until the date of payment.
For interest awarded to reflect the cost of being deprived of money we will use the following rates:
- the time-weighted average Bank of England base rate plus one percentage point, for complaints referred to us since 1 January 2026 – use our interest calculator to get an idea of how much this might be
- otherwise, 8% per year simple, for interest accruing from 1 April 1993 and 15% per year simple, for interest accruing before that date.
Typically, the interest should be calculated from the date the loss crystallised to the date the compensation is paid. If your customer has lost money at more than one point in time, you should calculate interest from the date of each crystallisation to the date of settlement.
If your customer has recovered any loss in the intervening period, you should take that into account in the interest calculation.
Where an ombudsman makes a money award – and your customer accepts their decision – you may also have to pay interest if you don't make the payment by the set deadline. The typical deadline we set is 28 calendar days from the date you're told your customer has accepted the final decision.
The interest rate applied for late payment is 8% simple a year.
There are some situations where we may tell you to pay interest at a different rate, for example, if the customer:
- had to borrow money, we may base compensation on the interest they had to pay on that loan
- had to use money from another account or investment, we may base compensation on the interest or income lost in relation to that other account or investment.
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Where we determine that the advice was unsuitable – and the adviser’s fee was paid by way of commission or charges taken from the customer’s investment – compensation for the investment loss should use the actual amount of money the customer invested before those charges. No separate calculation is needed in respect of the fees.
We don’t usually reduce the return produced by the calculation using our benchmarks for calculating investment loss to allow for the cost of the advice, as we don’t think this would be fair.
Adjusting the benchmark return for charges would also complicate the calculation for you. This complexity isn’t justified because the benchmark return isn’t the actual figure the customer would have got before charges, but a broad measure of potential loss. So, we generally consider it fair to use the benchmark return as a measure of what the customer would have got net of charges.
Where instead the fees were paid by the customer directly and not out of their investment – and we decide that you gave the customer unsuitable advice – we’ll look at whether they’ve had to pay fees for fresh advice to put things right. If they have, or are likely to have to, then we’ll usually expect you to repay the fees relating to the unsuitable advice. This is to make sure the customer won’t end up paying twice.
But where you’ve already taken action to correct the situation without charging a further fee, we won’t ask you to repay the fees. That wouldn’t be fair.
If we tell you to return fees that the customer has paid directly for unsuitable advice, we’ll ask you to add interest. This is because the customer has been deprived of this money since the fee was charged. For interest awarded to reflect the cost of being deprived of money, we will use the following rates:
- the time-weighted average Bank of England base rate plus one percentage point, for complaints referred to us since 1 January 2026 – use our interest calculator to get an idea of how much this might be
- otherwise, 8% per year simple, for interest accruing from 1 April 1993 and 15% per year simple, for interest accruing before that date.
Typically, the interest should be calculated from the date of the fee to the date the compensation is paid. If your customer has paid fees at more than one point in time, you should calculate interest from the date of each fee to the date of settlement.
If your customer has recovered any fees in the intervening period, you should take that into account in the interest calculation.
Where an ombudsman makes a money award – and your customer accepts their decision – you may also have to pay interest if you don't make the payment by the set deadline. The typical deadline we set is 28 calendar days from the date you're told your customer has accepted the final decision.
The interest rate applied for late payment is 8% simple a year.
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Our usual approach when calculating investment loss is to take into account amounts paid out by:
- withdrawals
- distributions of capital
- income paid before tax.
In some investment cases, rather than pensions, we will also take into account any tax benefits the customer was eligible to receive through investing in the unsuitable investment. This might be income tax relief from an enterprise investment scheme, for example.
You’ll need to make sure your calculations properly reflect the history of the investment, including calculations to allow for withdrawals, and when they were made.
If an investment was designed to produce a regular income, you shouldn’t deduct all the withdrawals upfront before calculating the return. Instead, you should make a series of calculations, each reflecting income withdrawn at different times.
In some cases, there are a large number of income payments. To make the calculation simpler, we may allow you to first calculate the compensation then reduce this amount by the total income payments.
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With some investment products the provider enhances the amount the customer invests at the beginning. We usually say that the compensation calculation should use the actual amount of money that the customer paid.
So if the customer paid £10,000 – but an enhanced allocation applied (so, for instance, £10,200 was invested) – the compensation calculation should use the £10,000 figure to work out what return the customer would have got if their money had been invested differently.
This automatically allows for benefits the customer may have had from the investment, when comparing this with the return the customer actually received.
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When we decide that life cover would have been suitable for the customer, we'll usually tell you to take this into account in the compensation calculation. In other words, you can deduct the cost of life assurance from the compensation calculation.
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Occasionally we decide that it wasn’t suitable for a customer to make contributions to part or all of an investment. For example, this might be because some premiums went towards an unsuitable protection policy with little or no investment value.
In these cases, we’re likely to award a refund of premiums with interest. The interest is payable on each premium, from the date that each premium was paid to the date of settlement.
For interest awarded to reflect the cost of being deprived of money we will use the following rates:
- the time-weighted average Bank of England base rate plus one percentage point, for complaints referred to us since 1 January 2026 – use our interest calculatoruse our interest calculator to get an idea of how much this might be
- otherwise, 8% per year simple, for interest accruing from 1 April 1993 and 15% per year simple, for interest accruing before that date.
If your customer has recovered any loss in the intervening period, you should take that into account in the interest calculation.
Where an ombudsman makes a money award – and your customer accepts their decision – you may also have to pay interest if you don't make the payment by the set deadline. The typical deadline we set is 28 calendar days from the date you're told your customer has accepted the final decision.
The interest rate applied for late payment is 8% simple a year.
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We'll usually tell you to calculate the investment loss up to the date the customer ceased to have the investment.
This means comparing the customer's position at that date with the position they'd have been in if they hadn't taken out the unsuitable investment.
In addition to the compensation for the investment loss, we're likely to tell you to pay interest on the investment loss up to the date you pay compensation.
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If the customer decides to cash in the investment, they're free to do so. It won't affect whether we uphold the complaint or not. But if we decide to uphold the complaint, it will affect the compensation calculation.
If we decide the investment wasn't suitable, we'll tell you to calculate compensation using our standard approach where the customer no longer has the investment.
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In cases where we think a customer is due more than the limit, we'll recommend the additional amount we think you should pay. But we'll talk to both sides about what this means at the time.
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Sometimes an investment is suspended which means it can’t be sold or surrendered. These are called 'illiquid' investments. But circumstances might change in the future, and it could become possible for money to be released or for the investment to be sold.
In these cases, we’ll usually say that for calculation purposes the value of the investment should be assumed to be nil. This is because we can’t be sure about what value, if any, the customer might be able to realise from the investment in future.
If you pay the full compensation calculated on this basis, the customer will have got back the full fair value we think is due. So they won’t be out of pocket, even if they never receive anything back from the illiquid investment.
If a value was to become available from the investment at a later date, it wouldn’t be fair for the customer to receive this on top of the full fair value they’ve already received. So we’ll generally say that, where possible, ownership of the illiquid investment should be transferred to you at the point of settlement so you’ll receive any later value or payments from the investment.
You can do this by:
- getting the customer to sign a deed of assignment
- arranging for the customer to transfer it to your name
It’s up to you to arrange this, if possible.
If the full, fair value is higher than the maximum amount we can order you to pay, we’ll recommend that you pay the value in full. You don’t have to follow this recommendation.
If you choose to limit the payment to the maximum amount, we think it’s fair for the customer to keep the illiquid investment. The customer can then use any payment which might come from the investment in future to top up the compensation they’ve received and make it up to the full fair value.
Once the return the customer has received reaches the full fair value, then ownership of the investment should be transferred to you. But again, it’ll be up to you to arrange this if possible.
