Bad Financial Advice - Seeking Compensation

brucedavid21

Can anyone please help?

My girlfriend lost her mother just over 3 years ago. She was 18 at the time and inherited £25k from the sale of her mothers house (single parent). She was half way through first year at University in Scotland and was therefore very stressed with having to move all her stuff into storage, the loss of her mother and trying to keep on top of her course. I had just met her at the time and was therefore unaware of a lot of what was going on.

As she had no knowledge of investments she opted to go to a financial advisor so that the money could give her a good deposit for a house in the future. The financial advisor advised her to opt for an unit linked investment that tied her money for at least 5 years with penalties. The FTSE has performed very well over the period of this investment yet the interest accrued has been very poor. She has now cashed in the investment with the intital £25k being put towards a house and the remaining interest received over the 3 years of £1,900 being put towards our wedding. Incidentally the financial advisor received just over £2000 commision for this investment (one meeting approx 30 - 60 mins work).

I feel this was terrible advice and a case of a financial advisor preying on someone who was young and inexperienced and distraught from the loss of their mother. As she was a student and had more than 3 years left she could have benefit from tax free savings. Therefore had she invested the money in ING Direct or other similar account (5% interest over the period) she would have received £3,750 interest. Any person with a little knowledge of investment could have worked that out, nevermind a professional. In addition tying a students money for at least 5 years when they are 18 seems ridiculous as they would obviosly need some of this money within this time.

Does anyone know the best way forward for seeking compensation against this financial advisor? I want to make sure he doesn't do this to some other young person.

Thanks for taking the time to read this, any advice would be greatly appreciated.

ashcarrot

In your post you mention it was tied in for 5 years, yet else where you mention 3 years interest etc. Did you cash it in early (some investments need to ramp up )

dunstonh

I feel this was terrible advice and a case of a financial advisor preying on someone who was young and inexperienced and distraught from the loss of their mother.

In what way? She knew it was a 5 year term and surrendered it early and paid penalties for doing so.

The FTSE has performed very well over the period of this investment yet the interest accrued has been very poor.

You say the FTSE performed well but the interest paid has been low. Investments in the stockmarket dont pay interest. Is the money even invested in the stockmarket?

Incidentally the financial advisor received just over £2000 commision for this investment (one meeting approx 30 - 60 mins work).

It doenst matter what the adviser earned. And its closer to 6-8 hours work on a decent portfolio with 3-4 hours on a single fund product.

Therefore had she invested the money in ING Direct or other similar account (5% interest over the period) she would have received £3,750 interest.

A savings account is not an investment. She invested the money.

In addition tying a students money for at least 5 years when they are 18 seems ridiculous as they would obviosly need some of this money within this time.

She knew it was 5 years at the start. Why would she obviously need the money in that time?

Does anyone know the best way forward for seeking compensation against this financial advisor? I want to make sure he doesn't do this to some other young person.

On what grounds are you going to complain? There isnt enough in what you have said so far.

There does appear to be a lot of confusion about what she had though and what you are comparing it to.

medicman

my word dunstonh you really have come out with an incredible statement there:

'It doenst matter what the adviser earned.'

Are you saying to me that when you go out to a restaurant it doesnt matter what they charge you? When you go to buy a jumper it doesnt matter what it cost? You must be a very rich man if you can afford to not have to worry about these things!!

dunstonh

Difference is that you pay the restaurant an explicit charge. Comission is not explicit. It is paid for out of the charges of the contract and the provider can take many years to recover the commission paid.

The product sounds like a GEB (remember what I said about them being inflexible). The 3% is not paid by the policyholder. So, it doesnt matter what the adviser earned from it. The provider could have paid 3% or 5% or 10% but it would make no difference on a GEB.

medicman

You should be a politician dunstonh!! I have never heard such nonsense in all my life - the fact is whether a charge is explicit or not, whether it takes 5 days or 5 years for the investment company to reclaim the comission paid to the advisor - it is the client that is paying the comission through the charges paid to the investment company and therefore it does matter how much is paid. Am I correct in saying that in the past it wasnt mandatory for IFA's to disclose how much comission they were paid, but that now if asked they have to provide the figures? Can I ask why the change in rules?

dunstonh

You should be a politician dunstonh!! I have never heard such nonsense in all my life

That is because you dont know what you are talking about. GEBs pay 3% commission. It is not an explicit charge on the contract. Indeed, the total lack of explicit charges is one of the negatives of this product.

Currently the NS&I GEB and L&G GEB are offering identical terms. L&G pay the adviser 3%. NS&I pay nothing. Yet the terms are the same.

it is the client that is paying the comission through the charges paid to the investment company and therefore it does matter how much is paid.

And what are the explicit charges on a GEB then?

Am I correct in saying that in the past it wasnt mandatory for IFA's to disclose how much comission they were paid, but that now if asked they have to provide the figures? Can I ask why the change in rules?

Commission disclosure was introduced in an attempt to bring charges down. However, the EU are not putting pressure on the FSA to remove that requirement as it serves no purpose other than to confuse people who cannot tell the difference between charges and commission.

It also creates issues where two advisers selling identical products. One adviser is paid 7% the other is paid 4%. The adviser getting 4% rebates nothing but the adviser getting 7% rebates 2% into the plan and lowers the charges. However, the first adviser is getting more commission but offering lower charges than the second one. In this case, if you had focused on commission you would have got the more expensive contract. If you had focused on charges, then it doesnt matter.

When you buy a washing machine do you compare the profit margin of the two retailers or do you look at the price you pay?

medicman

That's odd that you chose to focus your reply based purely on GEBs considering I never made any mention of them. I have absolutely no idea what type of investment the OP may be referring to, and neither is it my job to do so. You also have no hard evidence for thinking he is referring to a GEB. You have just conveniently chosen this to illustrate your flawed point. What about the other types of investment eg) investment bonds on which you can earn a ridiculous 7% comission? Are you telling me that the 7% comission is not paid by the consumer?

jamesd

brucedavid21, what did she say she wanted at the time of the purchase? What she asked for is critical.

If she specified that she wanted no risk of losing the original capital amount, except from inflation, and a chance of growing with the stock market, with no intent to use the money for at least five years, the product, which sounds like a GEB, may have been suitable.

Was she provided with details of a for-fee option as well as the commission option?

medicman

isn't 8% comission a bit high for a GEB? (Not having a go at anyone - just interested to find out!)

bluejake

dunstonh wrote: »

It doenst matter what the adviser earned. And its closer to 6-8 hours work on a decent portfolio with 3-4 hours on a single fund product.

You talk utterly daft nonsense. And then you have the chutzpah to say to someone else:

dunstonh wrote: »

That is because you dont know what you are talking about.

Reading the nonsense you have written which you think you can disguise with irrelevent technical gibberish, I was going to joke, 'I bet he is an independant financial advisor' and then I noticed your signature which states: 'I am an Independent Financial Adviser.':rotfl: