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31/10
‘ethical’ investment bond – whether advice
appropriate for customers’ attitude to risk
After inheriting a sizeable sum of money, Mr and Mrs F consulted
a financial adviser. The couple had no investment experience
and said they were happy to be guided by the adviser. They
said they hoped the money might be invested in ‘ethical’
companies.
The couple followed the adviser’s recommendation to
invest £24,000 in an investment bond. However, several
years later they complained that this advice had been inappropriate.
When the firm rejected their complaint, Mr and Mrs F came
to us.
complaint upheld
The firm insisted that the investment that the adviser recommended
had been suitable for Mr and Mrs F’s needs and circumstances,
and consistent with their attitude to risk.
The firm conceded that the ethical investment bond presented
a higher risk than it would normally have considered suitable
for the couple. But it said the couple had insisted on an
ethical investment and they required a higher income than
would be available from either a deposit-type account or
a
low-risk investment. It said the adviser had made the couple
fully aware of the risks involved.
Mr
and Mrs F denied that the adviser had explained the level
of risk associated with the investment bond. They said that
although they liked the idea of an ethical investment, they
had not insisted that this was the only type of investment
they were prepared to consider. They said they had asked
about the possibility of using the money to pay off their
mortgage, but the adviser had very firmly advised against
it. They told us they had believed all bonds to
be a safe form of investment. They had not realised there
were different types of bonds, and that some carried a high
risk.
We noted that, for some years, the couple had been living
on a very low income, as Mr F was in poor health and receiving
disability benefits.
In our view, the investment advice had not been suitable
for their circumstances because it presented too high a
risk. There was no evidence that the adviser had given the
couple any warning about the risks involved. We considered
that he should only have gone ahead and arranged the investment
after he had set out the risks in writing and obtained written
confirmation from the couple that they wished him to proceed.
We considered, on a balance of probabilities, that if the
adviser had given Mr and Mrs F a clear warning of the risks
involved, they would not have gone ahead with the investment.
We asked the firm to refund the premiums the couple had
paid, with interest.
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31/11
transfer of a with-profit bond to a unit trust – whether
customer wrongly advised
Early in 2000, a 64-year-old widow, Mrs A, met the firm’s
representative to discuss her investments. On his advice,
she surrendered the with-profit bond she had held for four
years and put the money in a unit trust instead. She said
the adviser had told her the unit trust offered ‘superior
tax advantages’.
Two years later, after seeing the value of her unit trust
investment fall substantially, Mrs A complained to the firm.
She said it should never have advised her to switch from
the with-profit bond. When the firm rejected her complaint,
she came to us.
complaint upheld
Mrs A said she had not been aware that investing in the
unit trust involved any risk, and that the adviser had not
discussed this with her. We found no evidence to refute
what she told us. It was clear from the ‘fact find’
that the adviser had not made a full assessment of Mrs A’s
circumstances. And there was no evidence of any attempt
to quantify how she would benefit from the tax advantages
he had said she would get. We therefore upheld the complaint.
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31/12
mortgage endowment policy – whether firm took customer’s
change of circumstances into account
Mrs H was alarmed when the firm sent her a ‘re-projection’
letter, warning that the mortgage endowment policy she had
taken out ten years earlier might not produce enough to
pay off her mortgage. She complained to the firm, saying
the firm’s adviser had not warned her of this possibility
when he sold her the policy.
The firm rejected Mrs H’s complaint. It said the problem
was due to ‘poor investment performance, something
that was always a possibility with this type of policy’,
and it claimed that the adviser had given her a brochure
that explained this. Dissatisfied with this response, Mrs
H came to us.
complaint upheld
The firm should have determined Mrs H’s attitude to
risk at the time of the sale. But it was unable to produce
any evidence that it had done so. After we questioned Mrs
H about her circumstances at the time of the sale, we established
that – when she had sought advice – she had
not been in a position to take any risk with her mortgage.
She and her husband had previously had a mortgage endowment
policy, but her circumstances had changed dramatically since
then. She was a single mother on a low income when the firm
sold her the new policy.
We therefore concluded that the advice had been unsuitable
and that the firm should provide redress, in line with the
regulator’s guidance.
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31/13
firm sold customer three mortgage endowment policies –
whether it explained risk – firm offers redress for
one policy – customer insists all were mis-sold
When Miss L decided to move house, she discussed her financial
situation with her father, who was an investment adviser.
She already had a mortgage endowment policy and her father
advised her to take out a further two mortgage endowment
policies.
Five years later, Miss L received re-projection letters
from the firm, warning that her policies might not produce
enough to pay off her mortgage. She complained to the firm,
protesting that she had never been made aware that these
policies carried any risk.
The firm subsequently told Miss L that there was evidence
to suggest the third policy had been mis-sold.
It offered her compensation for this in accordance with
regulatory guidelines. Miss L rejected the offer, saying
she should receive redress for all three policies, and she
then brought her complaint to us.
complaint
rejected
We looked at the ‘fact finds’ that had been
completed for all three of Miss L’s policies –
the original mortgage endowment policy and the two that
her father had recommended. It was clear from these documents
that Miss L’s attitude to risk had been assessed on
each occasion, and that the risks associated with the policies
had been explained to her.
Miss L was unable to deny this evidence when we pointed
it out to her. And eventually she acknowledged that, on
each occasion, her adviser had discussed other mortgage
options with her. We therefore rejected her complaint.
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31/14
‘execution-only’ policy – customer’s
expectation of additional benefits following firm’s
flotation – whether adviser acted correctly in selling
second policy
Mr G asked an independent financial adviser to obtain information
for him about a with-profits policy with a specific firm.
He subsequently took out this policy through the adviser,
on an ‘execution-only’ basis (that is, without
receiving any advice). He had not mentioned to the adviser
that he already had a similar policy from the same firm.
He knew that, as a policyholder, he would benefit from the
firm’s forthcoming flotation, and he assumed he would
double his benefits by having two policies rather than one.
At the time Mr G took out his second policy, the firm had
not finalised the terms of its flotation benefits. In particular,
it had not yet decided whether it would provide higher benefits
for those who held more than one of its policies.
When the firm announced the full details of the flotation
benefits, it said it would pay all policyholders the same
level of benefit, regardless of the number of policies held
by any individual. Mr G then complained to the adviser,
saying he had acted incorrectly in selling the second policy.
When the adviser rejected the complaint, Mr G came to us.
complaint rejected
The adviser was not at fault. He had obtained information
for Mr G, at Mr G’s request, and had subsequently
arranged the sale. However, the adviser had not provided
any investment advice.
At the time of the sale, the firm had not yet published
its terms for the flotation benefits. Mr G was therefore
taking a risk that having a second policy would increase
his benefits. He had not told the adviser that he already
had one policy. And even if he had done so, the adviser
would not have been in a position to confirm whether he
would be entitled to additional benefits. We rejected the
complaint.
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31/15
firm’s delay in payment of pension annuity –
customer’s expectation of redress – our approach
to compensation for distress and inconvenience
Mr A sent us a 35-page submission, complaining about the
firm and setting out why he thought it should pay him £20,000
in compensation. The nub of Mr A’s complaint was that
the firm had been responsible for a significant delay before
it started paying his pension annuity. Mr A also noted that
the firm had made significant errors in calculating the
payments, had ignored his letters and failed to return calls.
complaint settled
In a quick telephone call to the firm, we established that
it had already sorted out all the payment problems. Mr A
agreed this was the case. However, he said he had decided
to bring the complaint to us because of his ‘utter
frustration’ about the length of time the firm
had taken to resolve matters.
Initially, he remained adamant that he expected £20,000
compensation. However, after we explained our general approach
in cases of distress and inconvenience, he conceded that
his expectations were unrealistic.
The firm had already confirmed that it had been responsible
for serious delays in paying Mr A’s annuity and Mr
A accepted its offer of £500 compensation.
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from
the Financial Ombudsman Service
issue 31