What constitutes mis-selling of stock market investments to someone old and naive?

Dulce-ridentem

Hi all, apologies for the long post - a troubling topic 

I'm seeking advice on how to claim investment mis-selling on behalf of a relative, now deceased aged 90. I'm her executor. Can anyone advise the key points that constitute mis-selling? 

I believe she was mis-sold investments by her IFA when she was 78, twelve years before her death.  Until he died her husband had managed everything financial and administrative. Their investments were in National Savings and bank bonds. Then she discovered the IFA (or they discovered her). When she wanted an income to supplement her state pension, in 2007, based on the IFA's advice, she invested almost 300,000 in some funds. She drew down money erratically-  a monthly amount for the first year then none for several years then irregular amounts (a sweep).

I feel someone almost 80 and with significant health issues should not have been advised to invest in the stock market, especially as she had almost no experience of such investing. It's 'a long-term investment'. I know from unprovable conversations that she didn't understand the impact of fees and drawdown on her lump sums. When she needed to move house she was confused to find she could not recover her invested funds without a significant loss on the stated value of the fund.

Since she started drawing down an income from the month after she invested, she paid significant fees to invest money that she then withdrew almost immediately.  In my view there was no need to put the full 300K in this fund, she could have taken income in the first few years from a cash investment with no volatility and no commission, leaving the rest in stock market funds for 5 years or more if that was what she wanted. Drawing down from a stock market investment immediately is silly - and she didn't need to; NS&I were paying more than 5% on 5 year bonds at the time of her investment. 

I'm upset and angry at the anxiety she suffered when the investment confused her. I couldn't help much because I'm female and she believed money was a matter for men. At her request, my husband and I spoke with the IFA just before her death, as she was confused  and anxious about her sweep payments. 

The advisor points out that my relative signed the usual paperwork agreeing that everything had been explained to her. He says her risk attitude was 5 (not sure of the scale for that). I think  she would just smile and  sign what the nice man asked her to sign. She was a smart lady but inexperienced and uninterested in finance. 

 I am less worried about the money - she had enough - than what I see as mis-selling, the high fees (three times what I pay for my own investments) and the stress she experienced. I would hate to think they would do the same to other vulnerable people, who could not afford to  lose out or have their funds tied up at a time of life changes. 

Would the ombudsman find mis-selling here? What should I emphasise in making a case?

eskbanker

I think the main hurdle you'd need to overcome is demonstrating that she clearly declared what her objectives were and that the advice given wouldn't deliver these, so much will rest on the documentation of what was discussed at the time - have you seen this yet?

You're saying that she was after an income from these investments but that she didn't take any for several years after the first year, which suggests that it wasn't a typical income-generating facility that she needed, so it begs the question of exactly what she declared as her requirements?  If she got by for several years without drawing down from the investments, where was she getting the money from, i.e. what other assets did she have?

It'll be best to steer clear of subjective opinions about what she should have done based on your preconceptions, so, for example, the fact that her fees were higher than yours is irrelevant, and a five-year NS&I rate is hardly pertinent if you're arguing that cash deposits would be preferable over investments for short-term drawdown.

It's also easy to look back with hindsight and see that starting an investment journey shortly before a major global financial crisis wasn't ideal, but obviously decisions need to be made based on known facts at the time.  You suggest that she shouldn't have been advised to invest because of 'significant health issues' but she survived another twelve years, which would obviously imply that the health issues weren't life-threatening at 78?

Before engaging with the ombudsman you should invoke the IFA's complaints procedure if you haven't already done so....

JohnWinder

I’m reading that as ‘claim it happened’, not ‘claim compensation’. If you think mis-selling, over-charging, whatever, is the case, then claim it; you’re not the judge and jury or the executioner, you’re the complainant. If you’re assaulted you go to the police and claim you’ve been assaulted; they sort it out and a judge/jury might be appointed. You’re not responsible for all that. But whom to claim it to, that I don’t know; but you can find out the appropriate body/person.

Why should you make your claim? Because if it’s well founded you’re doing a public duty in helping to build up a picture, in the regulator’s mind, of the IFA. That’s a picture that is made up of yours and others’ complaints; if no one makes the complaints, yet they have foundation, then the public continues to be exposed to his/her wrong doings or poor practice. If yours is the only complaint and it’s found to be without sufficient foundation for action, then no adverse consequences flow to the IFA (as troublesome as the whole thing might have been). 

It’s analogous to reporting side effects from AstraZeneca vaccines. Would you have that nobody bothered reporting them, or would you prefer everyone with any concern diligently reported it to the most appropriate authority who has the capacity to evaluate the report and act in the public interest? Even if most of the reports of side effects were dismissed on review, it’s better than missing the ‘right’ ones simply because people are unsure whether to report, or can’t be bothered. As well, do you think it would be better to report vaccine side effects to the drug industry association or even the company itself, or an independent authority? Hint: the industry is not whiter than white when it has come to these matters. How about the financial services industry?

colsten

What is the objective of your claim, what are you hoping to achieve? You mention you discussed the investments with the now deceased - why did you not cinvince the lady at the time that she had been, in your opinion, missold, and help her to take action then? Whose interest are you having in mind?

Sea_Shell

So have these investments actually still made money over the last 12 years, or have they lost money??


"When she needed to move house she was confused to find she could not recover her invested funds without a significant loss on the stated value of the fund"

Was this just a timing issue due to the market being low at that particular time or were there specific withdrawal fees/penalties?


Are they saying that you now face hefty fees to cash them in, as executor?

GeordieGeorge

What exactly were the investments? Do you have the ISINs?

Old_Lifer

You say she had  ALMOST no experience of stock market investing.    So did she have some experience then ?

You say she was confused when she later moved house but was she not confused at point of sale ?

Without knowing what was in the point of sale paperwork it would be hard to form a real opinion.

theoretica

You make me think of my parents who have recently turned their investments over to an IFA to manage, at a similar age, which I think was the right decision for them.  To show that your case was mis-selling you would need to be specific about your mum's case, not generics such as 'old people shouldn't invest'.

I wonder how much your mum spoke about wanting an income and how much about wanting to maximise the inheritance she left.

[Deleted User]

Assuming she died recently and thus investment started in 2008 or so - that was actually a great time (in hindsight) to buy into the market due to the crash and funds bought 100% in the FTSE would be up a significant amount now from the lows of the mid 4000s

The risk scale is 1-10 - 5 is balance risk where there is a risk of capital loss. The IFA will ask questions such as "I would rather know that I was getting a guaranteed rate of return than be uncertain about my investment" with a scale of 5 from Strongly Disagree to Strongly Agree which forms the risk profile. I am not an IFA so I don't know if 5 is high for someone who is 78 or not but I wonder how much of the 300k is left and if it has grown overall?

The IFA is very likely to have records of the initial questionnaire and annual reviews to ensure your mum was happy with the level so you will be arguing that your mother didn't understand this risk against strong evidence she did.

Thrugelmir

Dulce-ridentem said:

Would the ombudsman find mis-selling here? What should I emphasise in making a case?

What you need to establish is real facts not personal conjecture. The only people to gain from a mis-selling complaint  are the beneficiaries of the estate. As it appears that she didn't die destitute. To act on her behalf you should have gained POA a long time ago. 

eskbanker

Deleted_User said:

Assuming she died recently and thus investment started in 2008 or so - that was actually a great time (in hindsight) to buy into the market due to the crash and funds bought 100% in the FTSE would be up a significant amount now from the lows of the mid 4000s

Unfortunately the start point was pre-crash:

Dulce-ridentem said:

When she wanted an income to supplement her state pension, in 2007, based on the IFA's advice, she invested almost 300,000 in some funds.