investment case round-up

27/7
firm fails to act on customer instruction to cancel monthly payments – customer’s claim for cost of calls from abroad to put things right

In early May 2002, Mr S instructed the firm to cancel his regular monthly payments into his Individual Savings Account (ISA). He would shortly cease to be a UK taxpayer and, before this happened, he wanted to use up his tax-free savings allowance by paying a lump sum into the ISA.

The firm wrote to Mr S to confirm it had cancelled his monthly payments. But the following month, while he was on holiday in the Caribbean, he attempted to make his lump sum investment online. An online message told him to contact the firm as it was unable to accept his payment.

Mr S had to make a number of telephone calls to the firm (from his hotel) before he discovered that it had not cancelled the monthly payments. This was why he had been unable to arrange the lump-sum investment. The firm accepted its error and attempted to put things right. But in doing so it collected too large a sum from his bank account. Mr S then had to telephone his bank several times (again from his hotel) in order to establish exactly what had gone wrong.

When Mr S returned to the UK, he contacted the firm to complain. He asked it to reimburse him for the cost of the calls – approximately £285. The firm refused so Mr S brought his complaint to us.

complaint upheld
Mr S said that each time he had telephoned the firm, he had made it clear that he was calling from the Caribbean. At no stage had it offered to call him back, even though he had needed to make a number of calls before being put through to the correct member of staff. And he said that on several occasions he had been kept ‘on hold’ for some minutes.

In the circumstances, we thought it was right for the firm to compensate Mr S for the cost of his calls and we asked it to pay him £300. Mr S accepted this offer.

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27/8
investments fall in value – customer claims advice was inappropriate

After Mr and Mrs G’s son died suddenly in February 2000, they inherited £38,000 from his estate. They put this money in their current account with the firm. Shortly afterwards, the firm contacted them several times, by telephone and by letter. It asked if they wanted financial advice so that this money could ‘do better’ for them.

Mrs G claimed that she told the firm she was unable to think about such matters so soon after her son’s death, and she said that for a time the firm’s calls and letters stopped. However, it was not long before the firm contacted the couple again. In April 2001, Mr and Mrs G finally agreed to meet an adviser at the firm’s premises. However, after Mrs F became upset, the meeting was abandoned.

A second meeting was arranged two months later, this time with a different adviser, but again at the firm’s premises. The adviser noted on the ‘fact find’ that the couple’s attitude to risk was rated ‘3’ on a scale rising from 1 to 5. He recommended investing £24,000 in the firm’s unit trusts and the remaining £14,000 in two of its maxi-ISAs.

After the adviser had explained how the policies worked and what the risks were, Mr and Mrs G completed and signed the application forms. They also completed and signed a separate statement, confirming that they understood they were ‘under no obligation to buy or take up any of the recommendations made’.

The following day, the adviser wrote to the couple urging them to re-read the product literature he had given them and to make sure they were happy with his recommendations. The letter also stated the couple’s cancellation rights.

Mr and Mrs G went ahead with the recommended investments. The following year, the firm automatically transferred £14,000 from the couple’s unit trust holding into two further maxi-ISAs, to take advantage of the ISAs’ tax-free status. However, after the ISA investments fell in value, Mrs G complained that she had been wrongly advised. When the firm did not uphold her complaint, she referred the matter to us.

complaint rejected
Mrs G held the firm fully responsible for the ISAs’ fall in value. She said that if the firm had not been so persistent in urging her to take financial advice, then the money would still be safe in her current account. She told us that her husband did not understand financial matters and left decisions about money entirely to her. And she said she had already decided, before meeting the adviser, that she would agree to whatever he suggested, simply so she could get the firm ‘off her back’.

Mrs G did not deny that the adviser had explained everything in detail. But she claimed that, because of the emotional state she was in at the time, she had not been capable of making a decision. She said she had not known what she was doing when she signed the forms.

We noted that the investments had been taken out some 16 months after the death of the couple’s son. And although we felt it would have been reasonable for the adviser to have been aware of the couple’s bereavement, there was no evidence to suggest that Mrs G had been in such a state at the second meeting that she ‘did not know what she was doing’, as she had claimed. The meetings had taken place at the firm’s premises and not at the couple’s home. And while we accepted Mrs G’s assertion that her husband was not financially astute, he had been present at the meetings and would have provided moral support.

The firm had been quite persistent in its initial approaches to the couple, but there was no evidence that it had exerted undue pressure on them, either to meet an adviser or to take up any of his recommendations. The firm had followed all the correct procedures and there had been nothing unsuitable about its recommendations, in view of the information recorded on the ‘fact find’ about the couple’s circumstances and requirements. We did not uphold the complaint.

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27/9
savings policy – early withdrawal incurs penalty – firm’s right to impose a market value adjustment – whether policy suitable for customer’s needs at time of sale

Acting on the firm’s advice, Mrs D took out a savings policy. But eight years later, when she withdrew some of her savings, she was very surprised to be told by the firm that she would have to pay a penalty. When the firm rejected her complaint, she came to us.

complaint upheld
We looked at the ‘fact find’ that the firm completed at the time of the sale. This noted that Mrs D said she would need access to her savings before the policy had been in existence for ten years.

The policy that the firm recommended was one where savers could withdraw their money without penalty after ten years, but might have to pay a penalty if they needed access to their savings before then. This was because the firm reserved the right to charge a market value adjustment. And although, at the time of the sale, the firm had not imposed such a charge for some years, it had since begun to do this.

There was no doubt that the firm had the right to impose the market value adjustment. And the literature it had given Mrs D at the time of the sale made it clear that it might do this. However, we thought that this particular policy had been mis-sold as it had clearly been unsuitable for Mrs D’s needs at the time of the sale. The firm agreed to give Mrs D a full refund of her premiums, together with interest.

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27/10
share portfolio managed by firm – whether firm ignored customers’ instructions

Mr and Mrs T had a ‘discretionary management’ agreement with the firm that was managing their share portfolio. The firm had recorded their investment objective as ‘balanced’ (defined as requiring ‘reasonable long-term overall return’) and it noted that the couple were prepared to take a ‘moderate’ level of risk.

Early in the year 2000, the firm greatly increased the proportion of the couple’s portfolio that was invested in telecommunications, media and technology-related companies.

In December of that year, Mr and Mrs T complained to the firm. They said the firm had been negligent, had ignored their specific instructions and raised the level of risk in the portfolio beyond what was acceptable to them. When the firm rejected their complaint, they came to us.

complaint rejected
It is always important not to view complaints about investment performance with the benefit of hindsight, but to consider what was known in the marketplace at the time.

When the firm made the investment concerned, telecommunications, media and technology shares were widely considered an important area for investment. Any fund managers not having a significant weighting in this area would have been subject to criticism. We noted that, in this case, the proportion of funds that the firm allocated to these shares was very much in line with that allocated by managers of similar funds at that time.

Seen with the benefit of hindsight, the firm’s decision to move into these shares could be regarded as ill-timed (because of their subsequent decline). However, that did not constitute negligence on the firm’s part. The firm had acted in line with Mr and Mrs T’s stated attitude to risk, and we rejected the complaint.

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27/11
share portfolio managed by firm – whether firm’s investment in line with customer’s requirements

In the autumn of 2000, Mr M set up a ‘discretionary management’ agreement with the firm to manage his portfolio. Mr M’s investment objective was to obtain capital growth and his attitude to risk was ‘medium’.

Mr M became concerned when he discovered that 80% of the initial portfolio was invested in technology, media and telecommunications shares. He drew the firm’s attention to this apparent imbalance and complained that his portfolio had not been managed in line with his agreed risk profile or investment strategy. The firm dismissed his complaint, so he came to us.

complaint upheld
As in all cases of this type, it is important to look at market circumstances at the time the investment was made. We noted that at the height of the stock market in 2000, telecommunications, media and technology shares made up approximately 35% of the FTSE 100 index. In view of this, we thought the firm had invested an extremely high proportion of Mr M’s portfolio in these shares. Given Mr M’s objective and his risk profile, we thought a proportion of 35% would have been more reasonable.

We discussed the matter with the firm. We explained that we have no set criteria to define a ‘medium risk’ portfolio as containing any set proportion of investments and that we look at each case individually, on its own merits. In this particular instance, we felt it appropriate to look at the FTSE index weighting. Initially, the firm refused to accept our view but we were eventually able to negotiate an amount in full and final settlement of the complaint, without the need to refer the matter for an ombudsman’s final decision.

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