Ripped off by financial advisor? Ombudsman?

princeofpounds

I am posting to gain some advice for a relative of mine who feels that they may have been placed in an inappropriate investment by their financial advisor.

I have tried searching through past posts for similar cases and also for forums where this sort of thing might be discussed, but I've not had much luck (I suppose each case is quite individual) and so I'm hoping someone here can point me in the right direction.

Some necessary background - my relative built up a fair sum of money over the years through a succession of succesful small businesses up north (yes they do exist!). She retired early, in her 50s, with the proceeds from the sale of the businesses intended to provide an income for the rest of her days. She has a part time job to help supplement this, but the bulk of the income comes from the return on these savings. She is now just into her 60s. Her advisor is the private bank division of a large UK retail bank.

Her recollection of past events is roughly this, although because they occurred something like 5 years ago it is hard to remember the details. She wanted to use the capital to generate an income (actually around 10% was the desired aim, probably unrealistic expectation now but not to someone who lived in the 70s/80s!). However, because this was most of her savings and a major source of income she wanted a safe, cautious investment - she thinks these are the words she used. What she ended up in appeared to be some kind of structured product with a combination of debt and equity exposure - it did generate an income, but only about 85% of the capital was returned, which came as a bit of a surprise as that's not what she thought she was getting.

When it became apparent that the investments weren't doing what were expected, she complained to the bank. They conducted an internal investigation but wrote back that they believed they had behaved professionally and wouldn't accept liability. However, they were prepared as a gesture of goodwill to refund some of the money - a substantial portion, but less than half of what had been lost - this has been a verbal offer only so far. They said that if she wanted to complain further (I guess this means to the financial ombudsman service, not that my relative would have known about that service) they would have to close the account as the relationship would have broken down. Not exactly nice behaviour!

The bank now want her to accept that offer and move on by selecting some new investments. The loss may not sound huge in % terms but it's probably the difference between being able to buy a car for the grandchild (and no, I'm not that grandchild!) and not.

At that point I caught wind of this, and I'm trying to get to the bottom of whether the bank have done something wrong, whether we should encourage her to go to the ombudsman or accept the offer on the table and forget about it. I'm pretty financially literate (in fact I work for an investment management firm) but I have limited knowledge about the duty of care banks owe to individuals like this and what we would need to see if a case is winnable, and if so, what we might need to win it. To me, it seems like they have failed in their fiduciary duty by recommending an unsuitable investment. My major worry in taking this to the FOS however is the inconvenience of the bank's bullying account closure, and the fact that my relative recalls signing to agree going into this investment on some piece of paper. She is savvy with small business money, but doesn't understand the difference between a gilt and an equity for example, so she would not really have known or understood what was in the product! The offer by the bank seems to indicate they are worried to some degree.

We are getting together soon to go through her records (how complete they are I do not know) and draft a response to the bank.

So my questions would be:
- Where could we potentially go to get more advice?

- What documentation is important for us to establish what happened?
I was thinking about:
- Some kind of investment policy statement, an annual review of circumstances or a questionnaire which might indicate how risk tolerance was established.
- Some kind of 'suitability letter' pointing out why this investment was considered suitable?

- What happens if some of this documentation is missing at their end or ours? Apparently their representative is somewhat lax on this side of things.

- What would be a 'killer blow' that showed they had certainly proceed to the FOS? It's so hard to tell what is mis-selling and what is just poor performance on an agreed investment.

- Any ideas on whether we should just settle? I don't want her to go down without fighting her corner as best as she can, although she is willing to accept some kind of reponsibility she never understood what she was getting.

Lokolo

From the basics and sounds of things, she knew what she was getting into, investment wise, so she doesn't have a leg to stand on.

Investments with income taken out of the investment between 5-10 years and she has lost 15%... not sure how much this is but it doesn't sound huge considering months ago investments were down 30% for most.

However without more details I doubt many can tell you exactly the position (although I am sure someone will come and help more than I)

Good Luck

dunstonh

It's so hard to tell what is mis-selling

Not at all. If she was aware the investments were risk based and they were consistent with her risk profile then they are not mis-sold. If she wasnt aware of the risks then she has been.

One would assume that if she was a successful small business owner that she would have the common sense to understand risk and reward somewhat. The FOS do consider occupation (past and present) and the ability to understand.

and what is just poor performance on an agreed investment.

performance is not something you can complain about. I am sure she was very happy during the 4 years she would have seen good growth. The fact she had one bad year (as you would expect in any 5 year period) doesnt give her a right to complain.

A loss of 15% is very small and typically in line with what you would expect with a cautious investor.

purch

What documentation is important for us to establish what happened?

She should have been provided with copies of the fact find and anything else discussed at the initial and any subsequent meetings.

She would have been asked to sign these, so it will be hard to dispute anything included in these documents.

cos69

princeofpounds wrote: »

....... Her recollection of past events is roughly this, although because they occurred something like 5 years ago it is hard to remember the details. She wanted to use the capital to generate an income (actually around 10% was the desired aim, probably unrealistic expectation now but not to someone who lived in the 70s/80s!). However, because this was most of her savings and a major source of income she wanted a safe, cautious investment - she thinks these are the words she used. What she ended up in appeared to be some kind of structured product with a combination of debt and equity exposure - it did generate an income, but only about 85% of the capital was returned, which came as a bit of a surprise as that's not what she thought she was getting. .......

If she has received about 10% a year for the last 5years whilst retaining 85% of her capital at the end of the period, this does not seem bad. Your not going to get that return from a safe savings account

princeofpounds

From the basics and sounds of things, she knew what she was getting into, investment wise, so she doesn't have a leg to stand on.

Investments with income taken out of the investment between 5-10 years and she has lost 15%... not sure how much this is but it doesn't sound huge considering months ago investments were down 30% for most.

Thanks for the reply. I think the point is that she didn't know what she was getting into. What she thought she was getting into was something that produced an income. She was not aware that there was a risk to capital, although that was probably somewhere in the fine print I'm not sure it was explained to her. If you look up the mis-selling of precipice bonds, you'll see that there is a responsibility of the bank beyond the customer signing. It may even be a precipice bond... but I'm not sure until I see the product information. That's how woeful the explanation of what it was has been.

I agree it is not the worst loss in the world, but as I say, it's important enough to fight over (It represents about a year of income in the part time job!)

Not at all. If she was aware the investments were risk based and they were consistent with her risk profile then they are not mis-sold. If she wasnt aware of the risks then she has been.

One would assume that if she was a successful small business owner that she would have the common sense to understand risk and reward somewhat. The FOS do consider occupation (past and present) and the ability to understand.

Dunstonh, thanks, that does clear up my thinking a bit. I do not think she was aware - she probably should have been, but she thought the point of taking financial advice was to educate about the risks and they did not do that. They got her to sign a piece of paper, but I don't think there was actually ever a real discussion about what she was getting.

It's a good point on the occupation, and it's a worry of mine should it go to FOS. However, the problem with it is that it just doesn't work that way - she doesn't know anything about stocks or bonds, only about simple accounts for shopkeeping. I can value exceptionally complex derivative products, but I wouldn't know how to do accounts in a shop! (you might argue that's why derivatives are all messed up ;-) but I don't work in those areas...)

She would have been asked to sign these, so it will be hard to dispute anything included in these documents.

I suspect - although I don't have sight of the documents yet - that there are inconsistencies in the documents assessing the risk profile and the risk profile of the product. The bank are certainly willing to pay a lot of money to avoid the ombudsman, so I'm convinced there is a case somewhere. I just don't know where the line gets drawn.

purch

I suspect - although I don't have sight of the documents yet - that there are inconsistencies in the documents assessing the risk profile and the risk profile of the product

I would find those documents, and if you feel that it is so, then take them to a professional and get an independant opinion.

princeofpounds

cos69 wrote: »

If she has received about 10% a year for the last 5years whilst retaining 85% of her capital at the end of the period, this does not seem bad. Your not going to get that return from a safe savings account

Should have been clearer - she wasn't actually getting 10%. That was what she thought she might target, which I think explains why the advisor stretched to a riskier product. The fact that violated her stated risk tolerance was swept under the carpet to the point where it was a total surprise that all the money did not come back. A good financial advisor should have recognised that these were not compatible risk and reward objectives and reformulated them, not just pick one over the other.

I believe that she was getting closer to 7%, which with the capital loss leads to a compound annual growth rate of 3.6%, actually pretty lame.

princeofpounds

I would find those documents, and if you feel that it is so, then take them to a professional and get an independant opinion.

That's one of the big problems... which professional?

A lawyer?
An accountant?
An IFA?
A newspaper advice columnist?!

dunstonh

She should have been provided with copies of the fact find and anything else discussed at the initial and any subsequent meetings.

She used a discretionary investment manager and not an FA/IFA so the rules are different. Plus, supplying a factfind copy is not mandatory for advisers.

She would have been asked to sign these, so it will be hard to dispute anything included in these documents.

Even if an adviser was used, they are not required to be signed. Some do, some don't.

It's a good point on the occupation, and it's a worry of mine should it go to FOS. However, the problem with it is that it just doesn't work that way - she doesn't know anything about stocks or bonds, only about simple accounts for shopkeeping. I can value exceptionally complex derivative products, but I wouldn't know how to do accounts in a shop! (you might argue that's why derivatives are all messed up ;-) but I don't work in those areas...)

She wouldnt be expected to know the ins and outs but she should be able to understand risk assessment as a self employed business person. There has been a lot more focus on ability to understand with complaints in recent times (mainly due to rule changes in Nov 07). If she knew the products she wouldnt have sought advice and she certainly would not have used a bank.

However, the key thing and really the only thing that matters is did she know there was a risk and if so, was the risk consistent with her risk profile.

To be honest, given the very small size of the loss at just 15% and the withdrawals taken, she would have to be claiming she was paranoia about risk. The FOS would look for evidence of that (just as advisers are meant to give evidence that she can understand the risk).

The bank are certainly willing to pay a lot of money to avoid the ombudsman

There are signficant costs involved in a case like this if it goes to the FOS. With the FOS taking around 9-14 months and thats without appeal, it can be sitting in someone's case file for a long time. Even when there is not bad advice, companies often pay or offer an incentive to drop a case just because its cheaper to do so.

Of course, they could have looked at the paperwork and found deficiences which weaken their case and that is why they are offering something. Its always hard to say.

edit: following added after posting:

I believe that she was getting closer to 7%, which with the capital loss leads to a compound annual growth rate of 3.6%, actually pretty lame.

That is not lame. That is consistent with what you would expect on average considering the markets are currently down. Investments zig zag and sometimes they perform less than cash and sometimes better. In the short term, you expect periods when its less but in the long run the gap between cash and investments will growth normally. She is still very much in the short term.

Part of her problem here may be a misunderstanding of investments. it always happens after a drop. Even with those who you are really thorough on explaining things to and ascertaining risk, some will come back after a drop and indicate they didnt really understand when they said they did.

purch

An IFA?

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