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online technical resource

stocks and shares

  • overview

  • complaints we can't look at
  • a note on poor investment performance

  • individual transactions in stocks and shares

  • the broker's duty to advise

  • suitability of advice given by the broker

  • making clear the risk of particular shares

  • setting up and running a share-dealing account
  • dealing and arranging
  • overview

    Consumers cannot deal directly with the stock market. So a consumer who wants to buy or sell shares or stocks will need to use the services of a stockbroking firm. The consumer becomes the client of the broker and the broker will charge fees and/or commission for its services.

    As well as buying and selling stocks and shares on a consumer's behalf, some brokers make arrangements with consumers to manage their portfolio of stocks and shares.

    The complaints we see relating to stocks and shares generally involve:

    complaints we can't look at

    activities of the stock market

    The activities of the stock market itself are subject to the rules and regulations of the Stock Exchange. Complaints about stock market activities - for example, prices quoted by the market - should be referred to either the relevant stock exchange or the regulator as appropriate.

    activities of the company registrar

    A company registrar maintains the shareholder list for their company. This is not a "regulated" activity, so we cannot deal with complaints against registrars relating to this particular activity.

    Some registrars also offer share dealing services, which is a regulated activity - so we might be able to look into a complaint about this.

    activities of other parties involved in the purchase of shares

    As well as the broker, other parties are involved in the purchase of shares - for example, market makers. But even though these firms are regulated, they do not have a customer relationship with the consumer - and so the consumer cannot bring a complaint about them to us.

    share save schemes

    A share save scheme is a tax-advantageous scheme. Usually, it means that the employees of a company save money with a bank for a number of years. At maturity, the savings may be used to buy shares in the employer company at a price which is agreed at the start of the arrangement - rather than the market price at maturity.
    In share save scheme cases, we cannot consider complaints about:

    • the employer - because even if the employer is an FCA-regulated business, the operation of a share save scheme is not a regulated activity (see FCA Handbook PERG 2.9.14)
    • the firm acting as a registrar - because even if the firm is an FCA-regulated business, acting as a registrar is not a regulated activity. But we may be able to look at complaints about the firm if they are carrying out a regulated activity within the scheme - such as arranging the sale of the shares.

    a note on poor investment performance

    The value of a portfolio that contains assets with prices that fluctuate daily (such as shares) will rise and fall. We sometimes see complaints where the consumer is not happy that the value of their portfolio has fallen.

    The fact that a share or group of shares has performed poorly does not necessarily mean that a broker or portfolio manager has been negligent when choosing that investment.

    We are unlikely to uphold a complaint about poor investment performance in itself. But although poor performance may trigger the initial complaint, further investigation may uncover issues about the suitability of the investment.

    individual transactions in stocks and shares

    Where we see disputes about individual transactions in stocks and shares, consumers are usually complaining that their broker:

    the broker's duty to advise

    Brokers offer different types of service depending on the type of agreement that they have made with the consumer. In relation to individual transactions in stocks and shares, brokers offer:

    • "execution only" (dealing only) services
      The broker does not give advice - it simply buys and sells shares on the consumer's instructions. It may pass on factual information such as the price of a share or the level of the market.
    • advisory services
      The broker gives advice - which must be suitable for the consumer's investment objectives and attitude to risk.

    suitability of advice given by the broker

    Where we receive a complaint about advice given by a broker, we will look at whether the advice was suitable for the consumer's investment objectives and attitude to risk.

    There is more information about this in the section of our website on assessing the suitability of investments.

    making clear the risk of particular shares

    The regulator, the FCA, views a number of investments and activities as "risky" products - including penny shares. Penny shares are shares that are usually priced in pennies. They are often difficult to sell and the share price may be very volatile. There is also usually a large difference between the buying and selling price - which can mean that potential profits on short-term trading are immediately lost.

    We expect brokers to make the risks of penny shares clear to consumers. This generally means a broker will need to explain the risks to the consumer before completing each transaction. (For example, see the previous regulator's Final Notice to Gracechurch Investments Limited on 20 December 2012.)

    We sometimes see complaints from consumers who say they did not understand the risks of penny shares - and that they were pressurised into buying stock which later lost value.

    In these cases, we will listen to any available phone recordings of the sale to decide whether the appropriate risk warnings were given - and whether we think the consumer understood the risks involved.

    If no phone recording is available, we will look at other evidence we have about what was said. Even if a broker gave appropriate warnings and these were acknowledged by the consumer, we will still consider whether the shares were suitable for that particular consumer.

    setting up and running a share-dealing account

    We see several types of complaint about the way brokers set up and run share-dealing accounts.

    the broker took too long to set up a dealing account for the consumer - depriving the consumer of the opportunity to trade

    We will look at whether the time taken by the broker to set up a dealing account was reasonable in the case in question. If we decide that the broker took too long to set up the account, we will establish whether the delay caused any actual financial loss to the consumer - and/or whether the consumer was inconvenienced. If the consumer says they would have bought a particular fund or share during the time the account was being set up, we would generally ask for evidence to support this.

    a problem occurred with the broker's dealing systems that prevented the consumer from placing an order to buy or sell

    We will consider the broker's reasons for why the systems were not working - and what commitments the broker's terms and conditions made about providing trading systems.

    If we decide the broker was at fault, we will look at how the consumer was affected. For example, it is usually the case that brokers do not - and cannot - guarantee that their clients will always be able to trade online. In these cases, we would usually consider it reasonable for the consumer to have attempted an alternative like phone dealing.

    a share certificate was lost

    Where shares are held in certificate (paper) form, there is always the risk they will be lost or destroyed. If a certificate is lost, a registrar will not issue a duplicate until the owner of the share certificate signs a letter of indemnity. This letter indemnifies the registrar from any costs if the claim for a lost certificate turns out to be fraudulent. The owner of the shares will be expected to pay for the cost of the indemnity.

    Sometimes we decide the broker was responsible for the loss - for example, because the consumer notified the broker of a change of address but the broker sent the certificate to the wrong address. In these cases, we may tell the broker to pay for the indemnity.

    the shares are held by a nominee company - but the nominee company did not keep the consumer informed

    A “nominee company” is a company set up to hold shares in electronic form on behalf of consumers who do not want to hold them themselves. The shares are registered on the share register in the name of the nominee company rather than the name of the consumer.

    Because the shares are registered in the nominee company’s name, the nominee company should usually make sure that the consumer is kept informed about anything that could affect their interests as a shareholder. This includes takeovers, share issues or general meetings.

    We sometimes see cases where a consumer feels they have not been kept informed by the nominee company. We will look at the terms and conditions of the nominee company’s involvement and at what the consumer was told.

    dealing and arranging

    We see two main types of complaint about brokers failing to carry out transactions or carrying out transactions incorrectly: complaints about the type of order involved and complaints about the broker accidentally selling shares not owned by the consumer.

    type of order

    The most common orders placed with brokers are:

    • an "at best order" for the broker to buy or sell shares at the best price available at the time it contacts the market; and
    • a "limit order" where the consumer sets a price above which they will not buy or below which they will not sell. The deal expires if the limit price is not reached within a set period (usually 24 hours).

    In the cases we see involving "at best" orders, consumers sometimes complain that they did not get the best price available on that particular day.

    But "at best" does not mean the best price quoted on that particular day. It means the best price quoted at the time the broker went to the market - which should be within a reasonable time of the consumer's order being placed.

    So in these cases, we will consider the broker’s “best-execution” policy - and decide whether the broker got the best price quoted at the time it went to market.

    We also see complaints that arise from misunderstandings about "limit orders". There is no specific regulatory requirement about how consumers should be informed about "limit orders". But we sometimes decide that the broker should have been clearer about the terms of the limit set, either on the phone or in writing.

    A consumer may also complain that the market price went through the price set in the “limit order” - but the broker failed to carry out the sale or purchase transaction.

    In these cases, we look at market data to see whether the limit price was breached and we will also consider the circumstances of the case.

    accidentally selling shares not owned by the consumer

    We see complaints where the consumer inadvertently sold shares they did not own - and so the broker bought back the shares in the market.

    These cases usually centre on two issues: that the broker should not have allowed the consumer to sell shares they did not own; and that the broker should not have bought back shares without the consumer's permission.

    Any decision we make about who is responsible for the sale of the shares will hinge on who should have known the true position about which and how many shares were held. Usually brokers have no responsibility to advise "execution only" consumers about any change in their holding.

    However, we sometimes see complaints from "execution only" consumers whose shares are held in the broker's nominee account - and where the number of shares held is stated incorrectly (for example, after a share consolidation has taken place). We will consider each case on its facts.

    ombudsman news case studies

    • smallholder complains of inappropriate investment advice
      85/11, April/May 2010
    • advisory client of a stockbroking firm complains about poor advice, when company in which he has invested goes into administration
      78/07, July/August 2009
    • advisory client of a stockbroking firm complains that firm gave him poor advice
      78/08, July/August 2009

    help for businesses and consumer advisers

    contact our information helpline on 020 7964 1400

    This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.

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    • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
      We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
      We do not have power to make rules for financial businesses.
      Our current approach may develop in the light of circumstances disclosed by further cases we receive.
      We may decide that fairness requires a different approach in a particular case.