corporate bonds - compensation if misled

chris_dee

Hi, I hope someone can clarify something for me - in 2005 I had some spare money and invested in a corporate bond with a well known bank. The banks own financial advisor was obviously very keen for me to invest in the bond - he never suggested I should spread the investment in other products and actively promoted the product to me. A few months after making the investment the corporate bond I was in was then re-classified from a group C to a group D bond. Over the next few months the value of the bond dropped by just over 5 thousand pounds and I managed to get the bulk of my money out from the corporate bond. I have written to the bank but was fobbed off. A friend of mine has told me there is now a possibility that the bank can be held liable for the poor advice - in a similar way to other mis selling claims. Is this correct and does anyone know how I would go about making the claim. Many thanks

dunstonh

The banks own financial advisor was obviously very keen for me to invest in the bond - he never suggested I should spread the investment in other products and actively promoted the product to me.

Bank advisers had a reduced remit. They are not IFAs and cannot act in the same way IFAs can.

They are also not authorised to advice on direct assets. So, a bank adviser could not recommend a corporate bond (Even one supplied by the same bank the adviser worked for). They could recommend a corporate bond fund issued by that bank.

I have written to the bank but was fobbed off.

What was the reason. Its a key bit of information and without it we cant offer opinion.

A friend of mine has told me there is now a possibility that the bank can be held liable for the poor advice - in a similar way to other mis selling claims

Only if the advice was supplied by the adviser using their advice process. i.e. a factfind was carried out, a needs analysis took place and a written report issued detailing the advice. However, if it was a man-down-the-pub style discussion then it was never advice and the bank have no liability.

So, this is why we need to know why the bank rejected the complaint. If they said it was not a product in their range and there is no record of any advice (which is likely if it was a corporate bond) then you never had any advice you can complain about.

chris_dee

Hi, The advice was all given in my local branch of the bank concerned, a written report was prepared by the advisor after I had told him I wanted a low risk investment - thats what I thought I was getting but it turned out not to be so low risk after all. I cannot find the letter I got back from the bank at the moment - but I had complained about the bond being changed from a group C to group D - I was not given any choice in the change of the groups, also I thought that the low risk I wanted would mean I would make a little bit of money not lose it. If the advisor had told me I had a risk of losing some of the capital I would not have considered the product. Thank you

dunstonh

Hi, The advice was all given in my local branch of the bank concerned, a written report was prepared by the advisor after I had told him I wanted a low risk investment - thats what I thought I was getting but it turned out not to be so low risk after all.

Can you clarify if this was a corporate bond or a corporate bond fund?

but I had complained about the bond being changed from a group C to group D - I was not given any choice in the change of the groups

Its not to do with you. So, that is an easy rejection on that point.

also I thought that the low risk I wanted would mean I would make a little bit of money not lose it.

That would be no risk. Not low risk. Low risk means that there will be periods of smaller losses.

If the advisor had told me I had a risk of losing some of the capital I would not have considered the product.

Problem is that the report would have covered the risk. The brochure/key features would cover the risk.

So, every bit of documentation covers the fact it is low risk. You even said here you wanted to low risk.

Insider101

chris_dee wrote: »

Hi, I hope someone can clarify something for me - in 2005 I had some spare money and invested in a corporate bond with a well known bank. The banks own financial advisor was obviously very keen for me to invest in the bond - he never suggested I should spread the investment in other products and actively promoted the product to me. A few months after making the investment the corporate bond I was in was then re-classified from a group C to a group D bond. Over the next few months the value of the bond dropped by just over 5 thousand pounds and I managed to get the bulk of my money out from the corporate bond. I have written to the bank but was fobbed off. A friend of mine has told me there is now a possibility that the bank can be held liable for the poor advice - in a similar way to other mis selling claims. Is this correct and does anyone know how I would go about making the claim. Many thanks

This doesn't sound right to me. A corporate bond is a loan to a corporate entity(and C/D graded ones are basically junk bonds, issued by companies with a less solid track record and a greater risk of default). They basically make regular interest payments (known as the "coupon") followed by a full principal repayment at the end of an agreed term. As Dunstonh said, bank financial advisers are not authorised to advise on direct investment into corporate bonds.

You always get the full principal back if held until maturity unless the issue defaults on the debt. They can go down in value if they are sold on the secondary market during the term of the bond and interest rates in general have risen since the bond was issued (simple economics, if the coupon paid is lower than that generally available on the market, then the bond price has to also be lower to compensate). But a loss in value of £5,000 would be very unusual unless the investment was massive!

chris_dee

Hi, Yes it was a corporate bond fund, from the responses to my query it does not seem as if this was anything other than a very poor choice of investment on my part. Thanks for the clarification - not surprisingly I have kept well clear of advisers employed by the banks since then.

Nearlyold

Selling so soon after purchase when the value has dropped is a guaranteed way to lose money.