Mis-sold financial product - course of action & sources of advice

Phirefly

We've just found out our Mum was potentially mis-sold an investment product. I don't have too many details at this stage as we've literally just found out, and at this point I don't know what the product is. At this stage I'm just looking to be pointed in the right direction of sources of advice, as my Mum appears to be in serious financial trouble.

My sister and I suspect that she has been mis-sold a high-risk product that is seriously underperforming. She is extremely risk averse and doesn't fully understand the product, and has just been informed from another IFA that it 'could well be a case for the ombudsman'.

Am I right in thinking that the immediate course of action we should take is as follows:

>Find out the facts about the product, its performance and terms
>Submit a complaint to the company who supplied the product
>Submit a complaint to the Financial Ombudsman service

Can anyone recommend any good sources of advice and information we can consult in the meantime please?

Many thanks

dunstonh

>Find out the facts about the product, its performance and terms

performance is irrelevant. You cannot complain about investment returns as they are an unknown variable.

>Submit a complaint to the company who supplied the product
>Submit a complaint to the Financial Ombudsman service

You put the complaint to the adviser that advised her to take out the product. You cannot complain to the FOS until you have been deadlocked by the advising company.

Can anyone recommend any good sources of advice and information we can consult in the meantime please?

The other IFA she has used would probably be the best bet. We often put in complaints about mis-sold products on behalf of clients. We also know when rule breaches have taken place (or not).

My sister and I suspect that she has been mis-sold a high-risk product that is seriously underperforming.

Can you give us information about where its invested and the product. We can then tell you the actual risk level.

If it was sold any time in the last 24 months and is in a loss position then that is not grounds for complaint. If she is cautious risk and its lost anything upto say 15% then that would typically be acceptable.

She is extremely risk averse

Risks come in different forms and investment risk is just one of them. Most people are not risk averse but cautious (that is the typical view of the FOS). It is up to the adviser to ascertain the risk profile and document it accordingly. A bad risk assessment can lead to an upheld complaint. However, you cannot just complain you are risk averse after a period of decline to see if you can get your money back. That would need to be proven by your mum. Her past investment history would come in to play as well as the amount that was invested on this occassion compared to her overall savings and investments. If a good bulk of her money was invested and in equities it could very easily be upheld. If only 20% of your money was invested in equities and she had a lot of cash savings left then its harder for her to prove a mis-sale.

Phirefly

Thanks so much for your detailed reply.

dunstonh wrote: »

Risks come in different forms and investment risk is just one of them. Most people are not risk averse but cautious (that is the typical view of the FOS). It is up to the adviser to ascertain the risk profile and document it accordingly. A bad risk assessment can lead to an upheld complaint. However, you cannot just complain you are risk averse after a period of decline to see if you can get your money back. That would need to be proven by your mum. Her past investment history would come in to play as well as the amount that was invested on this occassion compared to her overall savings and investments. If a good bulk of her money was invested and in equities it could very easily be upheld. If only 20% of your money was invested in equities and she had a lot of cash savings left then its harder for her to prove a mis-sale.

I mentioned she is risk averse because while I wasn't in the meeting with the FA who sold her the product 4 years ago, I know that when she was asked as to her preferred risk level she definitley said low. As you have alluded, this is relevant as it appears she has indeed been directed toward a high-risk product, this is the opinion of the IFA she saw yesterday. At the time, she was simply looking for a safe place to put her cash divorce settlement, if it gave her some kind of return all to the good. She simply didn't understand what she was signing up to but trusted the expert in front of her. She has an extremely low income and no investment history, or financial experience. She had practically never even written a cheque until the divorce.

FYI, I don't have all the facts to hand but off the top of my head I believe that we're talking about 50% of her total savings (which come to about £40k; the total from the divorce settlement) She is past retirement age and still works part-time, however she is on a very low income and is not entitled to any of my Dad's pension and has no private pension of her own. I imagine it may be relevant that she owns her home outright bought from the proceeds of the sale of our family home.

Any more insight you could give based on these facts would be welcome, thanks.

dunstonh

I know that when she was asked as to her preferred risk level she definitley said low.

Low is not risk averse. It depends on what scale the adviser uses but low typically does not have to mean capital secure.

She has an extremely low income and no investment history, or financial experience.

Whilst rules on that and the type of investment that should be recommended to reflect that only came in November 2007 (so after this investment), there would be some expectation that the recommendation should take that into account. However, that doesnt eliminate the use of unit linked funds.

Also, it depends on the type of adviser. An IFA has to recommend the investment funds. A tied agent presents the investment funds available from their range that match that risk profile for the customer to choose (in reality they often steer but are not meant to but the steering wouldnt show on paper and its the documented evidence that is king in complaints).

she has indeed been directed toward a high-risk product

Can you tell us what the product is and what the investments are (i.e. is it an ISA invested in xyz fund. or an invesmtent bond with abc fund etc)

Phirefly

Thanks again

dunstonh wrote: »

Can you tell us what the product is and what the investments are (i.e. is it an ISA invested in xyz fund. or an invesmtent bond with abc fund etc)

I can't get that information until later, but will post when I do.

dunstonh wrote: »

Also, it depends on the type of adviser

As far as I know it was some sort of in-house IFA at the Woowich.

At the time, she was simply looking for a place to put a sum that whe wouldn't need for 5 years or so that would give her a modest return. I think she was under the impression that she was putting the money in some form of fixed-term account that had the potential of better returns than a standard savings account. She had no idea that after 5 years there was a chance she may lose a considerable amount of the initial invested amount, and potentially even all of it. She would never have wittingly chosen to do that as this is the only money she has to survive on.

I know this won't be an isolated incident and these things happen all the time, and I'm not surprised, but I'm just so upset that a professional would take advantage of a vulnerable person like this at such a blatently difficult time in their lives. I actually feel physically sick about it

dunstonh

As far as I know it was some sort of in-house IFA at the Woowich.

Woolwich dont use IFAs. They use tied sales reps.

Woolwich investments are typically poor quality but they never had access to anything that would be typically classed as high risk (i.e. Scarps, VCTs etc). They tended to sell basic products and were particulary heavy on selling guaranteed equity bonds and unit trusts.

but I'm just so upset that a professional would take advantage of a vulnerable person like this at such a blatently difficult time in their lives. I actually feel physically sick about it

Thats the risk of seeing a sales rep and not a financial adviser. The FSA has proposed that from next year that sales reps will not be able to call themselves advisers or give the impression that they are giving advice. They will have to make it clear that they are selling products. At the moment the banks are against those proposals (although IFAs are overwhelimingly in favour of them ). Banks account for over half of all complaints to the FOS.

That doesnt help you (or your mum as the case is) but it may help others who read this and who mistakingly think their bank is giving them real financial advice.

Darts

From my experience of the FOS, if the complaint reached them they would take into account her current/past investments and the fact that the investment in question was worth 50% of her total savings - people might be willing to take a significant risk with a relatively small amount of money but not generally with that sort of proportion.

How risk dealt with on the documentation is important - if it wasn't really explained and if as on some old forms 'low' risk was the lowest option available, and she's been sold a high risk prodict, she would have a stronger case.

It's important to remember though that a product was missold simply becuase it's now reduced in value due to market conditions.

Phirefly

dunstonh wrote: »

They tended to sell basic products and were particulary heavy on selling guaranteed equity bonds and unit trusts.

Evidently, it appears to be unit trusts she was sold, although I'm not sure which. While this might not be classified as 'high risk', it certainly seems so to someone who only has 40k to their name for the rest of their days and has never even heard of a unit trust let alone know what one is. She just wanted some form of savings vehicle and any income it may generate would be a bonus, and she had no understanding whatsoever that she may actually get back less than she paid in. She had absolutely no idea what she was being pushed into, and it now seems that it wasn't half the settlement, it was 80% of it, spread between Legal & General and Friends Provident.

Turns out she went to Barclays for a financial review yeaterday and the financial planning manager she saw was so upset by the situation that he actually initiated her complaint procedure to Barclays customer services himself and urged her to be careful what she said to him as he didn't want her to inadvertantly dilute her case.

Surely its pretty cut and dried that she has been mis sold?

EdInvestor

Phirefly wrote: »

Surely its pretty cut and dried that she has been mis sold?

So far you've said she was low risk, and that there was a 5 year time span envisaged. That doesn't rule out unit trusts.It depends on what type of unit trusts.Which ones? Shares, bonds, property? If a mixture, what percentages?

Was she taking an income from the investments (typically 5%, "tax free" )?

When is the 5 year period up?

Phirefly

I don't have the information to answer those questions right now, but yes they are unit trusts, I don't know what these comprised of.

Surely all that is immaterial though; now my limited understanding of unit trusts is that the value of your investment can go up or down. My mum was not aware that this was the case. Isn't it as simple as that?

dunstonh

My mum was not aware that this was the case. Isn't it as simple as that?

No. The documentation issued would have plenty of risk warnings saying it could go down as well as up. It really comes down to the factfind, risk profile and suitability report. If they say the right things and your mum has no evidence to the contrary then its paper evidence vs verbal evidence and paper usually wins.