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ombudsman news

issue 26

March 2003

investment case roundup

This selection illustrates some of the investment complaints we have dealt with recently.

mis-selling of mortgage endowment policy - firm's calculation of loss not straightforward - customer had paid off mortgage but retained the policy as a means of saving

Mrs B complained to the firm about the advice it had given her ten years earlier to take out a low-cost unit-linked mortgage endowment policy. She said that the firm had never made her aware of the risks associated with this type of policy, and that she would never have taken out the policy if it had done so.

At the time of the sale, Mrs B had a very low income, comprising her earnings as a care assistant and maintenance payments from her ex-husband for her two children. She had no savings or investments. Her previous mortgage, held jointly with her then-husband, had been on a repayment basis.

complaint upheld
The firm's recommendation of the policy had clearly been unsuitable. We told the firm it should compensate Mrs B in accordance with the regulator's guidance - Regulatory Update 89 - for the loss she had suffered as a result of its advice.

However, calculating the loss was not straightforward because, by the time she complained to the firm, Mrs B was using the endowment policy purely as a means of saving. After she had remarried a couple of years earlier, she had been able to sell her house and pay off her mortgage.

We told the firm that in calculating Mrs B's loss, it should include only the period when she had been using the policy as a means of paying her mortgage. We also told it to use the policy's surrender value as at the date she paid off the mortgage.

unsuitable investment advice in relation to family trust fund

After Mrs L's death, the trustees of her family trust complained to the firm, saying that the investment advice it had provided had been unsuitable and had caused a shortfall in the trust's capital.

The trust had been set up to preserve a capital sum for the use of Mrs L's children after her death. However, the value of the fund after Mrs L's death was lower than the amount that had originally been invested.

Some years earlier, the trustees had sought to increase the amount of income available for Mrs L, who had a life interest in the trust. At the time, the trust monies had been invested in a building society account. Acting on the firm's advice, the trustees had agreed to put the money into an investment product with a comparatively good rate of return.

complaint upheld
The firm rejected the trustees' complaint that it had provided inappropriate advice. It maintained that the advice had been suitable and it said that its representative had drawn the trustees' attention to the risks involved in this type of investment.

We saw clear evidence that the trustees had been well aware that they could not take any risks with the trust's capital. They told us they had stressed this to the firm's representative on several occasions during their meeting with him. And in a letter they sent the firm when first requesting advice, they had stated very clearly that their overriding objective was to "preserve capital in the long term".

So we concluded that the advice provided by the firm had been unsuitable. We required the firm to restore the trust fund to its original value.

joint unit trust holding - firm's error in acting on instructions of one unitholder - offer to reinstate units superseded by legal agreement made as part of the unitholders' formal separation

After Mrs A and her husband separated, she contacted the firm and asked if it would change the mandate for the unit trust investment she had taken out jointly with her husband. She said that, in future, the firm should get both their signatures before selling any of the couple's units. The firm agreed to arrange this.

However, some months later, acting on the sole instructions of Mr A, the firm sold all the units and sent him the proceeds.

When Mrs A complained, the firm apologised and offered to reinstate half of the units, in her sole name. But before it could do this, it learnt that, as part of the proceedings for the couple's legal separation, Mrs A had agreed to her husband retaining all the proceeds of their unit trust investment.

So the firm told Mrs A that it could not now reinstate half of the units and put them in her name, as it had previously agreed to do. However, it offered her £150 in recognition of the distress and inconvenience that its error had caused. Dissatisfied with this, she brought her complaint to us.

complaint rejected
We agreed with the firm that Mrs A no longer had any legal claim to the proceeds of the units.

switch of investment funds - customer claims firm acted without authority - whether customer gave instructions during telephone call to firm

Mr N, who made regular payments into an investment fund, complained that the firm had acted without his authority when it switched his payments into a different fund.

The firm did not accept that Mr N had any grounds for complaint. It said it had carried out the switch on Mr N's specific instructions, given in a telephone call to the firm's call centre.

Mr N insisted that he had not asked the firm to switch his payments to a different fund when he had telephoned the call centre. He claimed to have called simply to find out how he would authorise such a switch, if he ever decided to make a change in the future.

Unable to reach agreement with the firm, Mr N came to us.

complaint rejected
The firm recorded all telephone conversations with its customers, so it was able to send us a transcript of the call in question. From this, it was clear that Mr N's intention had not been purely to obtain information in case he decided to switch funds in the future. The call-handler had explained to Mr N that the firm would accept an instruction over the telephone. From the conversation that followed, it was clear that he had then given such an instruction. And a few days later the firm had sent Mr N a letter to confirm that he had instructed it to carry out the switch.

Mr N agreed that the firm's transcript of his call was accurate. However, he said he had been entirely unaware that he had given instructions for the switch during the call. He said he had been distracted at the time and had not heard all the questions put to him.

Mr N accepted that the firm had sent him a letter of confirmation. But he said he had only glanced at it and had not realised its significance. He said that since his policy documents contained information only about how to send the firm written instructions to switch funds, it had never occurred to him he could do this by telephone.

We pointed out that although the policy document did not mention that the firm could accept instructions by telephone, the firm had acted perfectly properly in doing this. It was clear from the transcript that it had explained the procedure to him. And it was equally clear that Mr N had specifically requested an immediate switch. We rejected Mr N's complaint.

telephone instruction for switch of funds - customer claims loss as a result of firm's delay - firm's representative had asked customer to sign blank forms "to facilitate switches"

Mr H complained to the firm when he suffered a loss as a result of its delay in carrying out his telephone instructions to switch some of his funds. The firm had told him that it could not carry out his instructions until he had signed and returned a form authorising the switch.

Mr H could not understand why the firm insisted on posting him a form to sign. He believed it already had a supply of consent forms that he had signed. However, the firm was insistent that it could not act until he signed and returned a form that it said it would send him.

The firm was prompt in sending Mr H the form, but some days elapsed before he finally agreed to sign and return it. Stock market movements during this period meant that he suffered a small loss. When the firm refused to accept responsibility for this loss, he brought his complaint to us.

complaint upheld
We found that several months before Mr H requested the switch, the firm's representative, Mr B, had asked him to sign some blank forms. Mr H said he had agreed to do this because Mr B told him it would make it easier for the firm to respond quickly, should Mr H need to transfer funds in future. So Mr H had been particularly annoyed when the firm appeared not to have any knowledge of these pre-signed forms.

Mr B had been in breach of the firm's rules when he asked his client to sign blank forms. And even though Mr H had no reason to be aware of this, it had still been very unwise of him to have signed them.

We sometimes see disputes where a firm defends its actions by producing signed authorisation from the customer, but the customer alleges that the document was blank when they signed it. It can be very difficult indeed to establish the truth in such cases.

Unusually, in this instance, Mr H was able to produce as evidence a letter from Mr B asking him to sign a set of blank forms. It was clear that Mr H had acted in good faith and that he had given the firm instructions to switch his funds. We told the firm to make good Mr H's loss, and we awarded a further £250 for distress and inconvenience.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.