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

NeilCr

ZingPowZing said:

NeilCr said:

ZingPowZing said:

NeilCr said:

ZingPowZing said:

NeilCr said:

ZingPowZing said:

"If there was wrongdoing then you should absolutely complain.   However, at the moment, I am not seeing it." - says a fellow IFA.

From my understanding, her IFA has done absolutely nothing since choosing investments in 2007, while leeching a commission throughout the financial lifetime of the host.

Am I missing something? 

Possibly - as there has been no comment at all about ongoing advice


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.

We all love dunstonh but I even the most saintly advisers are largely constrained by legal advice and imho the whole "Good IFA/Bad FA" agenda is overplayed.

What "digs" are you referring to, Neil? I'll answer them.

Let's see

'While leeching upon"

Exactly so. The OP states the 2007 investments went unchanged for twelve years.

"the IFA appears to have done nothing"

Yet you have no evidence

Given the above, I'd say the onus should be on the side charging a fee for the service. 

And your assertion that 2.2% was a poor return without taking into account any possible withdrawals. 

No, that is not what the OP said; the OP said that actual withdrawals WERE taken into account.

"Aside from that, Mrs. Lincoln, how did you enjoy the show"?

And yet again you have no evidence

Not changing investments doesn't mean the IFA did nothing...

True. The golf handicap doesn't come down by itself.

I rest my case...

[Deleted User]

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

GeordieGeorge

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

eskbanker

This discussion of long term returns all seems to be digressing from the fundamental point that the IFA should be measured on the suitability of the investments to the client's needs, so in the case of OP's relative, if her express objective was income generation then the scale of any capital growth is largely irrelevant - there's no point in buying apples and complaining that they're not oranges.  If the chosen portfolio wasn't suitable for income generation then that's a separate matter, although several of the investments were clearly oriented to that.

Obviously a perception of high fees, lack of proactive involvement, weak returns, etc, all contribute to an understandable general feeling of poor value for money, but none of that contributes to an actionable complaint of misselling, which has to be based on (un)suitability....

dunstonh

It should also be noted that in 2007, the commission paid was passive and did not require a proactive ongoing service.  The providers/fund houses were paying the adviser.  Not the client.   Whilst many firms, at that time, had started to provide ongoing servicing, it didn't become a requirement until 2013 and only then on new business from that point.    

So, in terms of a potential complaint, whether there was ongoing servicing or not is not a valid complaint reason.    If this was relating to say a 2018 sale, then it would be a different outcome.

Also, even where ongoing servicing was given, that doesn't mean changes are made.  There are plenty of people, especially the elderly that place value on the visit from the adviser to chat through things.   A comfort call in their eyes.  Or the ability to phone the adviser as a sounding board or just general understanding of current events.   Those things would have very little or no audit trail in that era.  

And for the record, I have pointed out issues on bad advice or similar many times over the decades of posting here.   I would have no hesitation of doing the same now if it was the case.  We are limited by the information we are supplied by the OP and there are some inconsistencies and clearly some lack of understanding.  What we do know is that this was the commission era predating RDR, FAMR and MiFIDII.   So, you should not expect requirements and outcomes from those things to be present prior to their introduction.    Complaints are based on the rules at the time. Not the rules today.

As it currently stands, we know that the person had around £300k in cash after investing this £300k.  They had tax issues that would have wiped out the age allowance (the bond would avoid that).  We don't know if the bond was in trust and if it was onshore or offshore (transact do both).  The amount invested left sufficient cash and the person had previously invested and went through the dot.com crash period not long after investing.  The new investment almost mimicking it by having the credit crunch happen just after.  The Transact bond has no tie ins and no MVR and would have been available to draw with top-slicing relief if the lady wanted the money.  She didn't want the money. Although the OP wishes she did.  Third-party wishes of a distant relative (in terms of contact) are not relevant to a complaint.

If the person had died early on and was in poor health at the time of investment, then it could be argued, probably successfully that investing was unsuitable.   However, they didn't die for another 12 years.  So, early death didn't happen and its a what-if scenario.   Complaint responses do not consider what-if scenarios.  They look at what happened.   The adviser may have given the right advice or they may have given the wrong advice to invest and got lucky she lived long enough. 

So, everything written so far does not indicate a missale reason. 

sevenhills

eskbanker said:

This discussion of long term returns all seems to be digressing from the fundamental point that the IFA should be measured on the suitability of the investments to the client's needs, so in the case of OP's relative, if her express objective was income generation then the scale of any capital growth is largely irrelevant - there's no point in buying apples and complaining that they're not oranges.

The OPs concern was the age and inexperience of her friend, as if an elderly female is not capable of taking advice from an IFA.

She does have a point, but perhaps someone else should have been looking after her finances?

eskbanker

sevenhills said:

eskbanker said:

This discussion of long term returns all seems to be digressing from the fundamental point that the IFA should be measured on the suitability of the investments to the client's needs, so in the case of OP's relative, if her express objective was income generation then the scale of any capital growth is largely irrelevant - there's no point in buying apples and complaining that they're not oranges.

The OPs concern was the age and inexperience of her friend, as if an elderly female is not capable of taking advice from an IFA.

She does have a point, but perhaps someone else should have been looking after her finances?

OP has many concerns but the key thing here is to isolate any that are specifically relevant to a misselling claim.

There are numerous adjectives being used to describe the deceased relative - OP uses 'old' and 'naive' in the title, plus 'inexperienced' and 'vulnerable' in posts, but also 'eccentric', while making it clear that the lady was stubborn and headstrong in her attitudes to others (and hence the apparent resistance to family assistance until late on), but ultimately it still boils down to the process followed by the IFA rather than being unduly influenced by a distant assessment of the customer's personality.

Thrugelmir

eskbanker said:

sevenhills said:

eskbanker said:

This discussion of long term returns all seems to be digressing from the fundamental point that the IFA should be measured on the suitability of the investments to the client's needs, so in the case of OP's relative, if her express objective was income generation then the scale of any capital growth is largely irrelevant - there's no point in buying apples and complaining that they're not oranges.

The OPs concern was the age and inexperience of her friend, as if an elderly female is not capable of taking advice from an IFA.

She does have a point, but perhaps someone else should have been looking after her finances?

OP has many concerns but the key thing here is to isolate any that are specifically relevant to a misselling claim.

There are numerous adjectives being used to describe the deceased relative - OP uses 'old' and 'naive' in the title, plus 'inexperienced' and 'vulnerable' in posts, but also 'eccentric', while making it clear that the lady was stubborn and headstrong in her attitudes to others (and hence the apparent resistance to family assistance until late on), but ultimately it still boils down to the process followed by the IFA rather than being unduly influenced by a distant assessment of the customer's personality.

If there were concerns over the mental capacity of the relative they should have been addressed earlier. Why has it taken for their them to die to spark an enquiry into how they managed their personal finances. Age in itself is not a barrier to making reasoned decisions. 

Dulce-ridentem

Useful discussions - and I do hope that someone might check their relatives' investment approaches. That matters.

I've tried to simplify and that's caused some lack of clarity, sorry. She invested twice, once in around 2001 which caused a lot of grief because of the MVA and once in 2007 which was the same sum, moved to a different investment. I have no paperwork (because of Covid I have only the will, since she lived in an area I cannot visit - and her house has now been cleared). I believe both investments were through this IFA but he has only addressed the second one in his response to my complaint. The with profits bond was part of the first tranche of IFA-led investment and not part of the Transact account. The first investment cost over 20K in fees and, the second cost 53K. 

There was no trust and no overseas investments. Transact refer to the setup as an 'account', nobody called anything a bond. There was no significant tax  benefit through the arrangement, looking at the actual numbers for reclaims and payments (ie under 200 pa benefit).

From the actual cash account figures, ignoring what the IFA told me (which was different):

• the IFA fees were  3.4% initial and 1% ongoing  per annum.
• The transact fees were 0.5% initial and 0.46% per annum.
• Withdrawals: £1000 per month for first 2 years; nothing for 3.5 years; thereafter the actual income ie ~ 8.5K pa until her death
  
• The total value of the fund when she died was about 10K less than her investment

My underlying concerns I think raise some questions relevant to others:

1. Ambulance chasing: how did a recluse come to have an IFA at all? Perhaps he approached her after the death of her husband. The local paper had reported her inheritance amount (hope we respect privacy better these days). For clarity, the inheritance was from her parents not her husband.

2. Her inexperience, frailty and profound deafness make it hard to be sure she understood what she was told - does a signature prove she did? Interesting question. Because she was deaf she had a tendency to nod when she didn't follow things.

3. Her first withdrawal was less than 1 month after the investment - that is what I mean by 'almost immediately'. This was planned!  Why would you advise spending 4.5% initial commision to invest money you knew was going to be withdrawn within a year? Is this really normal (the IFA says it is)? I can't see this as appropriate advice. She could have had ample income from her  other 300K in National Savings (Stupid q but is that cash? it was tied up for 5 year periods and she always reinvested the whole amount - I don't see that as cash but perhaps it is).  

4. She actually was worried and confused about the fees - she mentioned it frequently to me. But she didn't want anyone to intervene as it would be impolite to the advisor. So (until my discussion once I became her attorney) there is no record of any concern raised.

6. She didn't notice whether the funds went up or down - what she noticed was the MVA when she wanted to sell to fund a house move. She asked for help from my husband then. We reckoned that because the market had done well, the investment had grown enough to cover the IFAs fees - but the MVA was a nuisance when she needed the money.  She had no idea that there was an MVA on her investment. Was it not the IFA's role to explain it and make sure she understood before she signed up for it?

7. She didn't understand the income and thought she was receiving none. in 2020 she asked me to talk to the IFA to find out where the money was going. It was going into her current account. She was receiving about 8K pa in random amounts on random dates with varying descriptions, so it wasn't obvious.

8. Quality of advice. I agree, the fact the funds didn't do that well is tough. The best advice in my view would have been to explain that she needed to spend some of her NS&I growth as income and stop worrying.  The investment could have done better. National Savings bonds would have earned her almost 100K more in this period, investing from the same date. If the rules have changed to benefit the consumer, is there no onus on the advisor to inform the customer that they could be paying less in fees and receiving better service such as ongoing investment?

The perspectives people have shared have been useful, thank you. Sorry to present so many details.

dunstonh

There was no trust and no overseas investments. Transact refer to the setup as an 'account', nobody called anything a bond. There was no significant tax  benefit through the arrangement, looking at the actual numbers for reclaims and payments (ie under 200 pa benefit).

So, what is it?

Transact offer the following wrappers:

ISA

pension

offshore bond

onshore bond

General investment account.

With the size of the investment and you saying its not a bond, then its likely to be ISA and GIA.  ISA allowance was just £7k in 2007.  So, the expectation would be for annual bed & ISA from the GIA.  Did that happen?   There would also likely be the need to utilise CGT allowances.  Did any fund adjustments take place?

Those would be evidence of ongoing services happening - or not happening if they didnt.

1. Ambulance chasing: how did a recluse come to have an IFA at all? Perhaps he approached her after the death of her husband. The local paper had reported her inheritance amount (hope we respect privacy better these days). For clarity, the inheritance was from her parents not her husband.

Speculation and totally pointless.      Where is the wrongdoing with any of that - focus on the facts. Not hypotheticals. 

2. Her inexperience, frailty and profound deafness make it hard to be sure she understood what she was told - does a signature prove she did? Interesting question. Because she was deaf she had a tendency to nod when she didn't follow things.

Is there any evidence that she was medically incapable of understanding what she was doing 20 years ago?

Does being deaf make you unable to understand things? (I have a deaf client and she is saner than many others with full hearing)

3. Her first withdrawal was less than 1 month after the investment - that is what I mean by 'almost immediately'. This was planned!  Why would you advise spending 4.5% initial commision to invest money you knew was going to be withdrawn within a year? Is this really normal (the IFA says it is)? I can't see this as appropriate advice. She could have had ample income from her  other 300K in National Savings (Stupid q but is that cash? it was tied up for 5 year periods and she always reinvested the whole amount - I don't see that as cash but perhaps it is).  

Nothing wrong with a regular withdrawal starting like that.   Quite normal for then.   Nowadays, you would typically hold the first 18-24 months in cash but this is just how things have changed with products over the years.   Transact would have had a cash float on it.  How much was the cash float?

If she invested to cover withdrawals then using the investments for the withdrawals is what was planned and that left her cash as her safe money.  NS&I is cash.

4. She actually was worried and confused about the fees - she mentioned it frequently to me. But she didn't want anyone to intervene as it would be impolite to the advisor. So (until my discussion once I became her attorney) there is no record of any concern raised.

No evidence of that makes that unlikely to get anywhere and your figures do not indicate that there was actually anything wrong with the charges.

6. She didn't notice whether the funds went up or down - what she noticed was the MVA when she wanted to sell to fund a house move. She asked for help from my husband then. We reckoned that because the market had done well, the investment had grown enough to cover the IFAs fees - but the MVA was a nuisance when she needed the money.  She had no idea that there was an MVA on her investment. Was it not the IFA's role to explain it and make sure she understood before she signed up for it?

Transact do not offer a with profits fund and there is no MVR. So, you must be talking about the 2000 investment here.   No WP fund provider had a fee option in 2000. It was commission only. Pulling out of WP funds in onshore investment bonds into platform-based investments is something every IFA has been doing.   All quite normal and sensible.     We only have a handful of WP funds still on our books that we have left alone as they are doing the job and the versions are better than anything today (not everything old is bad - but a lot of it does go out of date with better things coming along).

7. She didn't understand the income and thought she was receiving none. in 2020 she asked me to talk to the IFA to find out where the money was going. It was going into her current account. She was receiving about 8K pa in random amounts on random dates with varying descriptions, so it wasn't obvious.

Transact use the same name and dates on regular withdrawals.  Was she perhaps getting the natural yield paid out?  The distributions would use different names and dates would vary along with amounts.   The dates would not be random but based on distribution dates of the different funds held.   it would also account for a lower return if yield was not being reinvested and the investments were yield focused.   Yield took a bit hit after the credit crunch.

Some people, particularly the elderly, like to receive their dividends rather than have them reinvested.

 The best advice in my view would have been to explain that she needed to spend some of her NS&I growth as income and stop worrying. 

Most NS&I products didn't provide income and were not suitable for income provision. They are a good safe house for cash though.

. If the rules have changed to benefit the consumer, is there no onus on the advisor to inform the customer that they could be paying less in fees and receiving better service such as ongoing investment?

If it is not an investment bond and ongoing remuneration continued to be paid to the adviser after the sunset clause with RDR (2013) then the adviser is required to provide a pro-active ongoing advice service.  If that has not happened, then there are grounds for complaint for a refund of charges from 2013.  However, the servicing would likely involve things like a visit which you cannot accuse of not happening as you don't know if it did or didn't.  It only became a requirement in 2018 for there to be a stronger audit trail on that front.

Fees are not a primary concern.  Suitability is. Transact is a high-quality platform. Not the cheapest. Not the most expensive.  I mentioned earlier the charges and they are much cheaper than the UK's largest self-service platform.   There is absolutely no reason to move someone from Transact.