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

dunstonh

I believe she was mis-sold investments by her IFA when she was 78, twelve years before her death. 

At 78, if she was in good health for her age, then she is younger the usual cut off for new investors (which is typically age 80).   However, you indicate that she had almost no experience.  That means she did have some experience and was not a new investor.

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).

Cash savings are an unsuitable option for income provision due to the very low interest rate.  It would result in capital erosion.    Lots of people draw their money in a variety of ways.   So, no issues so far.

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. 

That information is inconsistent with what you said in an earlier paragraph.  You said she drew monthly for the first year, then nothing for several years and irregular amounts.    So, clearly she did not withdraw almost immediatly.

 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.

That is one method that is available. It is not the only viable method.

 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.

Charges have been falling for years.  You cannot compare 2008 charges with 2021 charges.  2008 is pre-RDR and pre-MIFIDII.

You would generically expect charges to be higher from that period.

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

Nothing you have said indicates hints of missale.

If she was in poor health and had died in the early years then perhaps it would but she held them for 12 years and probably did very well out of them.     Old people shouldn't invest is not a valid complaint reason by itself.   As she held the investments for 12 years after purchase, any accusation of her being in poor health is irrelevant.

You cannot make allegations of what may or may not have been said.   The response back would be that you were not there.

Fees are largely irrelevant and would be measured on the products of the day. Not the pricing today.  

I suspect, given that it was 2007, that the money would have been in an investment bond.  That probably means there was the 5% deferral allowance (ability to draw 5% a year without immediately paying tax).  The ISA allowance was just £7000 and unwrapped UT/OEICs had a different taxation method to today.    Possibly a trust may have been used with it.    

Also, investment bonds did not impact on the age allowance (which still existed in 2007 and was not abolished until 2013).  Whereas unwrapped UT/OEICs did.  Investment bonds of that era did not have the cash account flexibility of today.   So, it was considered normal to draw a regular withdrawal early on. Especially if using the 5% deferred allowance.

You have given us very little information to go on and it seems largely based on your opinion that 78 is too old to start investing.   As I said, had she died a few years later, then there would be merit to that argument.  As she lived 12 years, there is no merit to it.

For most of that 12 year period, cash interest rates have been dire and you would expect a 12 year investment to have given much more than cash.   So, what exactly is it that you are after here?

steampowered

Your post seems to be based on a belief that your relative should have kept all of her money in cash / premium bonds, rather than investing.

What was the return your relative received on her investment over the 12 year period?

What would she have received had she kept the money in cash / NS&I? 

It may be worth coming up with a rough and ready estimate of those two figures. Without further information I would be willing to bet that the investment will have done better than if she had kept it in cash / NS&I for 12 years. 

Dulce-ridentem

Hi all,

thanks for comments. trying to simplify the story is difficult and I don't want to be too personal.

Almost no experience = she had never managed any investments at all and her husband invested in Bonds from their building society (the one her dad had used) and National Savings Certificates (which her dad used). In 1998 this was all she had. Shortly after after her husband died  in 2000 she first made an investment through an IFA (probably the same one but I can't prove it). The IFA says she had a with-profits bond in 2007 which he cites as experience of stock market investment. For her, the word 'bond' would make it sound the same as she was used to with the building society.

Should I ask the IFA to give me records of the earlier investment? I have full details of the fees and performance of 2008 one which is why I focused on that.

It is hard to explain why I couldn't influence her. She was an eccentric. She had hardly left her house since the 1960s (she didn't have a job and her husband was an invalid - they were very poor until the 1990s). She believed women don't understand money or business so by definition I couldn't advise her. She was devastated when her husband died and I think this left her open to a man 'helping her'. I doubt she would have known what an IFA was, maybe he approached her after her husband died. She lived 5 hours travel from me in a remote village, and from the 1960s she only allowed one family visit per year (most relatives saw her less - I saw her more often latterly but she was even furious I visited without permission after she fell and broke several bones). I am not her daughter, she had no children. She never mentioned concerns about inheritance. She knew all her close relatives were financially fine, and she left quite a lot to charity.

The investment did okish - about 2.2% compounded, giving her 78K in growth and income over the 14 years. The total fees she paid over the period were 53K, of which the advisor received 37K. These fees are higher than average, according to Which? money - they probably not exceptional but they aren't good value. She didn't understand that she had to pay every year, but I can't prove that. NS&I 5 year growth bonds (her usual investment)  would have earned 177K  in the total period (isn't compound interest amazing? plus NS&I  more than 2.2% for almost all the period). Using that for comparison seems right as it is what she would have done with no advice.

My concern isn't the return, which could have been worse.  I feel she was vulnerable and the IFA took advantage of this. She mentioned the high fees every time I saw her. I witnessed her anxiety when she felt she couldn't sell (there was an MVA, not a penalty - so they said 'your fund is work 10K but if you sell it you will get 9K'. She couldn't handle the concept. It eludes me somewhat, too!).

I do not know exactly what she asked for and have no paperwork. She had 600,000 in savings (inherited when she was already elderly) but her pension was minimal so I believe the IFA who says she wanted an income. She didn't draw money down because she found didn't need it. She lived very frugally, through habit.

Someone can be very ill for years and miraculously hang on! They built them tough in the 1920s. My ideal would have been for her to live peacefully somewhere she loved, with no money worries. With her assets that was perfectly possible. Instead she lived like a church mouse in semi-slum conditions and worried all the time about money. If there had only been a knowledgeable male relative I think we could have done better by her. Just feeling sad.

eskbanker

Dulce-ridentem said:

She had 600,000 in savings

Was this at the time of consulting the IFA in 2007?  It makes a massive difference to the recommendation to invest £300K if she had the same again in cash deposit form....

Dulce-ridentem said:

She didn't draw money down because she found didn't need it.

So there wasn't really much need for income generation from this pot?

Dulce-ridentem said:

Just feeling sad.

Perfectly understandable and a natural human reaction, but the issue at hand is whether the IFA did anything wrong, to the extent of bearing any actual liability for the consequences.

Dulce-ridentem said:

I do not know exactly what she asked for and have no paperwork.

This is going to be the crux of the matter IMHO, as without evidence it's all just speculation.  Have you formally complained to the IFA and/or submitted a Subject Access Request to obtain all relevant details about their dealings?  Edit: as dunstonh points out below, DPA obligations don't apply to personal data of the deceased.

[Deleted User]

Plus one for making a Subject Access Request on your IFA, as suggested by eskbanker.

https://ico.org.uk/for-organisations/guide-to-data-protection/guide-to-the-general-data-protection-regulation-gdpr/individual-rights/right-of-access/

It should be free and you should get it fairly promptly. Once you have the same information as your IFA, you should have much better grounds to proceed to the ombudsman, if your suspicions are borne out.

2.2% compound is a poor investment performance for the last twelve years. You should be interested (and entitled) to know how the IFA dealt with any concerns raised during that time. You may not be seeing all the charges either. As Dunstonh mentions, the IFA got to your relative before ongoing fees from fund to adviser were banned. Do ask whether they applied in this case. 

colsten

Again: what is your objective? Do you want the IFA to be punished in some way? Why? Do you want to increase the value of the estate? What action did you take when the lady was distraught and confused - for example, did you at least notify the IFA that this was the case? To your knowledge, did she tell the IFA that she was unhappy with the investment? Why is her alleged inexperience with investments an issue - are you saying only experienced investors should engage an IFA? 

Mothman

OP I think you still need to clarify what the actual investments were and the percentage rate of commission the IFA received?

Without this information it's hard to make any meaningful comment other than she chose a bad time to invest as it was just prior to the 2008 financial crash. This wasn't her fault or the IFA's and is just bad luck, but to be expected when investing.

[Deleted User]

colsten said:

What is the objective of your claim, what are you hoping to achieve? Whose interest are you having in mind?

Odd questions for a thread on a board committed to "Cutting your costs. Fighting your corner."

That would refer to the consumer, colsten, not the IFA; something those trying to ingratiate themselves with advisers - "where thrift may follow fawning" - would do well to remember once in a while.

dunstonh

 The IFA says she had a with-profits bond in 2007 which he cites as experience of stock market investment. For her, the word 'bond' would make it sound the same as she was used to with the building society.

Forget what you think she may have thought 20 years ago.  It is totally irrelevent.
It is also clear that she did have experience with investments for the previous 7 years and 3 of those years were negative as there was a major fall in the markets in that period.

The investment did okish - about 2.2% compounded, giving her 78K in growth and income over the 14 years. 

You have not mentioned the investments but 2.2% p.a. growth plus withdrawals on top is not necessarily a bad outcome for a low risk investment.

The total fees she paid over the period were 53K, of which the advisor received 37K. These fees are higher than average, according to Which? money

Have you a link to the article from Which in 2007 that says that?   Again, forget it if it's a recent article as that will be based on charges when it was written.  Not charges at the point of sale.   Also, 2007 would unlikely to be a fee based investment but a commission-based one.  Commission was not explicit to fees.  Indeed, In 2007, Aviva had an investment bond on a commission basis that could give an IFA 0.5% p.a. and an initial commission and have a negative reduction in yield due to charges for the first 5 years.    The lack of transparency on commissions was one of the reasons they were abolished in 2013.  However, it is all irrelevant.      

Also, most WP funds in an investment bond were around 1% p.a. in 2007.  So, the charges may well not be heavy.   Are you looking at the initial sale illustration that shows the impact of the cost of charges and treating that figure as the amount of charges paid?   That figure is increased with a growth rate and is designed to show the impact rather than the actual charges.  The actual charges would be much lower.  On that illustration, there would be a reduction in yield figure.  That gives you a better indication of the real charge (e.g. a reduction in yield of 1.1% p.a. would indicate a 1.0% annual charge).

And, there are still distribution channels today that have high charges of that level and are allowed to do so.  The fact that the majority are cheaper is irrelevant.

My concern isn't the return, which could have been worse.  I feel she was vulnerable and the IFA took advantage of this.

The problem is that it's all opinion and you saw her once a year or less and that was only in the later years.  

She had 600,000 in savings (inherited when she was already elderly) but her pension was minimal so I believe the IFA who says she wanted an income. 

This is significant new information.  Firstly it confirms that the age allowance would have been wiped out with cash saving and more importantly, it indicates that investing £300k (half) was not at all unreasonable as it left a significant cash float.

My ideal would have been for her to live peacefully somewhere she loved, with no money worries. With her assets that was perfectly possible.

That may be your ideal but it wasn't hers.  She had £300k in investments and £300k in cash.  I doubt many people would consider that scenario as being one that gives money worries.

Have you formally complained to the IFA and/or submitted a Subject Access Request to obtain all relevant details about their dealings?

I believe the GDPR only applies to the living.

Dulce-ridentem

Hi @dunstonh -- 2.2% allows for withdrawals -- a bit simplistic but I just added all her withdrawals and the total gain and calculated the interest equivalent.  I could use a more complex model but there are a lot of imponderables and I'm trying to keep it simple but fair. 

I'm looking at the actual money the IFA received -- I have the balance sheet with all outgoings for the whole period.  So I have allowed for the way tax affected things, and also for the rebate she got on some fees by using the wrapper.

Fair point about commissions etc. That's why I'm here, to get some perspective. She paid an initial fee and then annual fees. Totalling 53K over the period. I've been told there are also fees to close the account.