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ombudsman news

issue 101

March/April 2012

investment round-up

Overall, the number of investment-related complaints referred to us is continuing to decline, partly no doubt because market conditions have not been as subdued as anticipated.

And, encouragingly, we are seeing evidence of improved complaints-handling on the part of some investment businesses - which is also resulting in fewer complaints being referred to us.

The cases we do see include a significant number where consumers complain that they have invested in products carrying greater levels of risk than they had anticipated - and that the underlying investments failed to match the descriptions they were given.

In some instances we have found that highly unsuitable products have been sold to elderly and inexperienced investors. We are talking individually with businesses - and, where appropriate, with the regulator - where this appears to have happened.

A small but steady stream of the investment complaints reaching us involves pensions and portfolio management. Many of these complaints also relate to the degree of risk involved - where market volatility has given rise to unexpected losses.

Disagreements between consumers and businesses about what investments should make up a 'high', 'balanced', 'low' or 'no risk' portfolio form a significant part of our casework.

This selection of recent case studies illustrates some of the wide range of investment complaints referred to us. They include:

  • allegations of inappropriate advice, involving the sale of bonds designed for relatively long-term investment;
  • a complaint about the delay in transferring a consumer's personal pension fund to an annuity provider;
  • a case where an inexperienced investor was advised to put her inheritance in an investment ISA;
  • a complaint from an investor who said he lost out because his stock broker failed to carry out his instructions correctly; and
  • a case where a consumer claimed he had been given misleading information about an investment he made after reading a newspaper advertisement.

issue 101 index of case studies

  • 101/7 - consumer close to retirement advised to put savings in an investment bond
  • 101/8 - consumer's executor complains that consumer was mis-sold a five-year bond
  • 101/9 - consumer says he was misled about nature of an investment he made on a 'non-advised' basis
  • 101/10 - complaint about delay by personal pension provider in transferring consumer's pension fund to annuity provider
  • 101/11 - complaint that stock broking business failed to carry out instructions correctly
  • 101/12 - consumer complains she was wrongly advised to put money into an investment ISA

consumer close to retirement advised to put savings in an investment bond

When Mr H retired, at the age of 64, he contacted his bank in order to withdraw the funds it had advised him to put in an investment bond two years earlier.

He had invested just under £100,000 and he later told us he had been 'distraught' to find the amount he got back was less than this.

He wrote to the bank to complain that he had lost out because of its poor advice. He also queried why he had been obliged to pay a 'significant charge' for withdrawing his money.

In response, the bank sent him what he considered a 'superficial and dismissive reply', telling him that the investment had been 'suitable' for his needs and that the charges were 'in accordance with the normal tariff'. Mr H then referred his complaint to us.

complaint upheld
Mr H told us he had not been actively seeking investment advice. He had been in a branch of his bank one day, paying some bills, when the cashier suggested that he should see one of the bank's financial advisers.

The cashier had noted that he had a balance of £100,000 in a high-interest savings account and she told him an adviser would help ensure this money 'worked harder' for him.

At that time, Mr H was 62 years old. He had no dependants and was still working full-time. He said he had made it clear to the adviser that he wanted his money 'kept safe' and that he would need easy access to it as soon as he stopped working. He was planning to retire 'within the next year or so' but had not yet got a definite date in mind.

We were satisfied, from the evidence, that the bank had given Mr H unsuitable investment advice. He was an inexperienced investor and, until he had been advised to invest in the bond, had only ever kept his money in bank and building society savings accounts.

The amount he had invested in the bond comprised virtually all his savings and the adviser had clearly been aware that Mr H would need this money as soon as he retired.

The bank attempted to justify its advice by stressing that the funds in which the bond invested 'did not present a particularly high level of risk'.

We accepted that this was the case. However, we pointed out that the bond still presented some risk of capital loss and was designed for relatively long-term investment.

We also noted that, in the circumstances, it had been inappropriate to place all of Mr H's capital in a single investment.

We upheld the complaint. We took the view that Mr H would have left the money in the high-interest savings account, if the bank had not advised him otherwise.

We told the bank to pay Mr H the difference between the amount he had invested in the bond and the amount he eventually got back. We said the bank should also pay Mr H the same amount of interest he would have received if he had left the money in his savings account.

consumer's executor complains that consumer was mis-sold a five-year bond

Mrs N was executor for her late uncle, Mr D. While she was going through his finances she found he had invested £50,000 in a five-year bond. This had matured shortly before Mr D's death, paying him the same amount of capital he had invested, together with £139 in interest.

The paperwork relating to the investment stated that no withdrawals were permitted until the end of the bond's five-year term. Interest was then 'calculated by reference to movements in the stock market'.

Mrs N was concerned that the bond had not been a suitable investment for her late uncle. She contacted the investment provider to complain about it, pointing out that Mr D had been 80 years of age at the time he invested in the bond.

She said that by then he had 'already become frail and vulnerable'. She added that he 'had only his state pension left to live on' and 'had never been at all knowledgeable about financial matters'.

The investment provider did not accept that Mrs N had any grounds for complaint. It told her the bond 'guaranteed' that the capital sum would be returned in full at the end of the term - and this had happened.

The investment provider said Mr D had sought advice on an investment that could produce a better return than he would obtain from a savings account.

It said he had been 'fully apprised of the nature of the recommended investment'. He had known he would not have access to his funds for five years, and had said that he had no future plans for the money.

Mrs N was unhappy with this response and she referred the complaint to us.

complaint not upheld
We looked at the investment provider's records regarding Mr D's investment. It was clear from the 'fact find', completed when Mr D first contacted the provider, that he had stressed he was an experienced investor.

He had not wanted to leave all his money in savings accounts, paying low rates of interest.

Mrs N had suggested that the £50,000 her late uncle invested in the bond was virtually all the money he had - other than his pension. However, we established that at the time he made this investment, Mr D also had around £10,000 in a building society savings account.

He also had over £75,000 in a range of investments that were all due to mature at regular intervals over the following three years.

We explained to Mrs N that in many instances, it might well be inappropriate to recommend a five-year investment for an elderly consumer.

However, much would depend on the requirements and circumstances of the individual consumer.

We said that in this specific case, the investment provider had not been wrong to recommend the bond to Mr D. We did not uphold the complaint.

consumer says he was misled about nature of an investment he made on a 'non-advised' basis

Mr A invested £8,000 in a five-year investment plan that was advertised in his daily newspaper.

After reading that the plan offered 'extra income' he had sent off for more details. And shortly after receiving a product brochure and 'key features' document, he had completed and returned the application form, together with his cheque.

Five years later, when the plan matured, he complained to the product provider. He said the value of his investment had fallen significantly and he would never have invested if he had known this might happen.

The product provider sent him a robust reply, denying that it had misled him in any way and insisting that it had 'fully outlined the potential risks - as well as the potential rewards'. Mr A then referred his complaint to us.

complaint not upheld
The evidence confirmed that Mr A had not received any investment advice but had invested on a so-called 'non-advised' basis. He had chosen to invest on the basis of information sent to him by the product provider, after he had responded to its advertisement in a national newspaper.

This information, consisting of an introductory letter, a product brochure and a 'key features' document, included a clear description of the plan. The description stated that the plan offered a capital return linked to an international stock market index.

The risks were set out clearly and prominently - and the illustrations of projected returns included a scenario where the stock market had fallen. The introductory letter told Mr A that he should seek investment advice if he had any doubts about the suitability of the plan for his own circumstances.

We concluded that the product provider had given Mr A clear, complete and accurate information about the investment plan and had not misinformed or misled him. We did not uphold the complaint.

complaint about delay by personal pension provider in transferring consumer's pension fund to annuity provider

Mrs G was close to retirement, when she would need to convert her personal pension fund into an annuity. This would then provide her with a series of regular payments for the rest of her life.

She had been contributing for some years to a personal pension scheme run by provider A. But after comparing its annuity rate with those available elsewhere, she found she would get better value from a different provider. She therefore asked to transfer her funds to provider B.

Two months later, not having received any confirmation that the transfer had taken place, she rang provider B to check that everything was in order. Provider B said it knew nothing about the transfer.

Mrs G then contacted provider A. She was concerned to be told it had no record of her ever having requested a transfer.

She had not kept a copy of the authorisation form it had asked her to sign and return. But she was able to say exactly when she had received the form - and when she had posted it back. She also remembered the date when she had first rang to discuss the transfer, and she had kept a note of the member of staff she had spoken to.

Despite all this, the provider still said it had no record of her request.

She later told us that 'insult was added to injury' when a member of staff spoke to her in what she considered an 'inexcusably patronising manner', calling her 'dear' and suggesting she might have 'got confused' and 'been mistaken' about asking for a transfer.

Mrs G had to make three further phone calls to provider A before she was finally able to establish that it had received her request. She was not given any explanation for the failure to make a proper record of her request - or to deal with it.

It took another two months and several further phone calls by Mrs G before the transfer was finally completed.

She then sent a letter of complaint to provider A, detailing the poor service she had received. It apologised and offered to pay Mrs G £25, in recognition of its failure to deal with the transfer efficiently. Mrs G thought this offer was 'inadequate, in the circumstances' and she referred her complaint to us.

complaint upheld
We noted that the transfer value of Mrs G's pension had increased slightly in the period between her first requesting the transfer and the date when it finally took place. So she had not suffered any financial loss as a result of the delay.

However, we were satisfied from the evidence that provider A's administrative failures had caused Mrs G a considerable amount of concern and inconvenience.

We upheld the complaint and told provider A to increase its offer of compensation to £175. We explained to Mrs G that we thought this reasonable, in the circumstances, and she was happy to accept it.

complaint that stock broking business failed to carry out instructions correctly

Mr V complained that he had lost a significant amount of money because a stock broking business made a mistake in carrying out his instructions.

He was a regular client of the business and said he had phoned it with an instruction to buy ' £5,000-worth' of shares in a particular company.

He was making this investment on an 'execution-only' basis, meaning that he had not received any advice. He simply required the business to obtain them for him.

In the days immediately following Mr V's purchase, the price of these shares fell dramatically. He later told us he decided to 'cut his losses' by getting rid of the shares before the price dropped even further.

However, after instructing the business to sell his recently-purchased shares, he found that instead of buying £5,000-worth of shares for him, it had bought 5,000 shares.

This meant that when the shares were sold he lost significantly more money than he had expected.

Mr V referred his complaint to us when the business denied having made any mistake in carrying out his instructions.

complaint upheld
We asked the business to send us its recording of the phone call in which Mr V had instructed it to buy the shares.

We noted that his exact words had been 'buy 5,000'. He had not specified whether he meant 5,000 shares or £5,000-worth of shares.

Normally, those engaging in such transactions would assume that an instruction to 'buy 5,000' referred to the number of shares to be bought, rather than to the value of the shares.

We put this to Mr V. He told us that he had carried out a number of transactions with this particular business. He said he had always expressed his instructions in the same way. He had never been told this was incorrect and his instructions had never before been 'misinterpreted'.

We established that until the transaction in question, Mr V had always spoken to the same member of staff. However, she had been away from the office on the day when the disputed transaction had taken place.

The member of staff who took his call that day had only been with the business for a few months and had never spoken to Mr V before.

We told the business that in these circumstances, as a matter of good practice, the staff member should not have processed the transaction without first checking to confirm Mr V's exact requirements. Instead, the member of staff had made an assumption which proved to be incorrect.

We upheld the complaint. We told the business to pay Mr V the difference between his actual loss and the amount he would have lost, if the business had bought the correct number of shares for him. We said the business should also pay interest on this sum.

consumer complains she was wrongly advised to put money into an investment ISA

Mrs K, who worked part-time on the checkout in a large supermarket, contacted an independent financial adviser (IFA) after she unexpectedly inherited £5,000 on the death of an elderly aunt.

Acting on the IFA's advice, Mrs K put this money into a medium-risk investment ISA. However, when she decided to withdraw her money, five years later, she was concerned to find that its value had fallen significantly.

She complained to the adviser, saying she would never have taken his advice if she had known she might get back less than she had invested.

When the adviser rejected her complaint, Mrs K contacted us.

complaint not upheld
Mrs K told us that the adviser had 'gone into great detail' about the tax advantages of ISAs. However, she could not recall his ever having said there were any risks.

The adviser sent us several documents relating to the advice he had given Mrs K. As well as the 'fact find' that he had completed during their first meeting, these included notes of his subsequent phone conversation with Mrs K and a copy of a letter he had sent her. The letter outlined the main points they had discussed and gave his reasons for recommending the investment ISA.

We accepted that Mrs K might not have remembered being told that the recommended investment carried any degree of risk.

However, we were satisfied, from the evidence, that the adviser had explained the advantages and disadvantages of this particular investment, setting out the risks very clearly.

The 'fact find' showed that although Mrs K had a relatively low income and few savings, she had regarded her £5,000 inheritance as a 'windfall'. She had told the adviser she was happy to 'gamble on the chance of getting a modest return' by investing it.

We concluded that Mrs K had received appropriate advice, in keeping with her requirements and her attitude to risk at the time. We did not uphold the complaint.