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ombudsman news

issue 29

July 2003

investment case round-up

a selection of some of the investment-related complaints we have dealt with recently

firm wrongly informs investors that investment proceeds were paid into bank account - investors claim compensation for money withdrawn on the strength of this information

Mr and Mrs E said that when they met their bank's investment adviser in May 2002, he told them that £28,000 - the proceeds of an investment they had made some years before - had recently been paid into their bank account.

The couple said that on the strength of this information they had withdrawn £4,000 from their account and bought a car. But shortly after this, the bank contacted Mr and Mrs E to say that its information had been incorrect. Although the couple had received £28,000 from an investment, this had been two years earlier and the money had been paid to them at the time.

Mr and Mrs E then said the bank should compensate them. They claimed they were now £4,000 out of pocket because it had misinformed them about the £28,000. The bank offered them a modest sum for distress and inconvenience. Dissatisfied with this, Mr and Mrs E then referred their complaint to us.

complaint rejected
The bank noted that two days before the meeting with the adviser, Mr and Mrs E had paid a cheque for £4,000 into their bank account. So it appeared that the couple had already been planning to buy a car, and had the money to do so, before they were told incorrectly about the £28,000.

The bank produced evidence that it had paid Mr and Mrs E £28,000 in November 2000. As far as it was aware, the couple had no reason to expect any further payments of this size. We therefore wrote to the couple, asking for more information about why they had paid in the cheque for £4,000, and why they thought this second payment of £28,000 was theirs. Mr and Mrs E did not respond.

transfer of personal pension from one provider to another - delay caused by administrative errors

Ms J wished to transfer her pension to a new provider (firm B). Firm B told her she would need to instruct the firm that was currently providing her pension (firm A) to arrange this. Firm A responded reasonably quickly, telling her it had contacted firm B with details of her request.

However, five months later Ms J had still heard nothing more. When she contacted firm B to ask what was happening, it said it had no record of ever receiving any information from firm A.

Ms J then complained to firm A. It told her it believed the delay was mostly the responsibility of firm B. However, it accepted that its own part in the process had taken longer than usual and it offered her £100 compensation for the inconvenience she had been caused.

Dissatisfied with this, she brought her complaint to us.

complaint upheld in part
We were unable to establish that the transfer details had reached firm B, even though firm A claimed to have sent them. But it transpired that the transfer value of Ms J's pension had increased over the period. So regardless of where responsibility lay for not processing the transfer, she had not suffered any financial loss.

Since we found that firm A had been responsible for a number of administrative errors, it agreed to offer Ms J an additional £100 for inconvenience, which she accepted.

contract for bond reissued several times because of repeated errors in personal data - start date of "cooling-off" period not affected

Mr and Mrs C invested a sizeable sum of money in a bond. But when they received the contract for their bond, they found that Mrs C's date of birth had been stated wrongly and there were several other errors.

After they complained to the firm, it sent them a new contract. Unfortunately, this new contract was also incorrect. Again the couple complained and again the firm issued a replacement contract. The firm issued four different replacement contracts before it got the details right.

At this stage, the couple told the firm that they had changed their minds and wanted to cancel the bond, in accordance with the "cooling-off" regulations.

The firm went ahead and cancelled the bond. However, it treated the cancellation in the same way as a "surrender". This meant that instead of giving the couple back all the money they had put in, the firm gave them back the bond's market value, as calculated on the day it received the request. A considerable period of time had elapsed since the couple had first applied for the bond, and investment markets had fallen. In addition, the firm had deducted an "early encashment" penalty.

Very disappointed with the sum they received, Mr and Mrs C complained again to the firm. It agreed to reimburse them for the "early encashment" penalty. It also agreed to pay them £600 for distress and inconvenience. However, Mr and Mrs C thought the firm should return their original investment in full.

complaint rejected
We did not uphold the complaint. Mr and Mrs C said they wanted to cancel because they had not been aware of how the bond was treated for tax purposes. They said that they had not read all of the information the firm sent them (including tax information) until they received the correct version of the contract.

We noted that although the firm had repeatedly entered some of the couple's details incorrectly, the standard information that it had sent them, including the information about tax, had been correct. So Mr and Mrs C had the opportunity to check this when they received the first contract.

The firm had included a fresh copy of the "cooling-off" regulations each time it sent a replacement contract. But this did not affect the date on which the cooling-off period began (the bond's commencement date). This had remained the same on each version of the contract. So by the time the couple finally received a correct version, and had told the firm that they no longer wanted the policy, the cooling-off period had expired.

Information that the firm had sent the couple made it clear that it would not be liable for any fall in the bond's market value if an investor cancelled the plan after the cooling-off period. We concluded that the firm had acted fairly and that the £600 it had already offered Mr and Mrs C as compensation for distress and inconvenience had been appropriate.

customer complains that firm's practice of "rounding" figures led to loss of one third of a penny - ombudsman service declines to deal with the complaint

Under our rules, in certain circumstances the ombudsman service can decline to consider some types of complaint. The following case illustrates a situation where we decided to dismiss a case without considering its merits.

Mr K complained to us about the firm that provided his personal pension. He said he was unhappy about the firm's practice of rounding figures to four decimal points (for prices) and to three decimal points (for units) when it provided information about its pension fund.

When the firm refused to uphold his complaint, Mr K came to us. He said he had carried out his own calculations and considered that, as a result of the firm's "rounding", he had lost approximately one third of a penny on a transfer from one fund to another. Mr K acknowledged that this was a petty sum, but he pointed out that, over time, his loss would grow.

We told Mr K that it would not be appropriate or proportionate for us to look into his complaint, in view of the tiny sum of money in dispute.

firm discovers client owns fewer shares than she has instructed them to sell - it buys additional shares on client's behalf in order to fulfil contract - client queries firm's actions

Mrs L decided to sell some of her shares in ABC Ltd. She contacted a share-dealing firm and asked it to sell £10,000-worth of these shares. She confirmed that she had a share certificate for 5,555 shares and the firm agreed to sell 4,185 of them to raise the sum of money she wanted.

However, when Mrs L sent the firm her share certificate, it discovered that she owned only 277 shares. The firm had already entered into a contract to sell £10,000-worth of shares and Mrs L's instructions were legally binding.

So the firm bought further shares in order to fulfil its contract with the buyer. The firm then deducted the cost of buying these additional shares from the amount it owed Mrs L.

Mrs L complained to the firm. She felt that it should have checked exactly how many shares she had before it made a binding agreement to sell them. She thought that the firm should either give her back her 277 shares or give her the full value of the sale of these shares, without any deduction for the cost of the additional shares it had bought.

complaint rejected
In our view, the firm had no obligation to check how many shares Mrs L had. Its responsibility was to agree a deal with her and carry it through correctly. The firm had accepted her instructions in good faith. And it had acted in accordance with its published terms and conditions when it bought additional shares in order to fulfil the contract and charged Mrs L for them.

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.