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ombudsman news

issue 24

January 2003

investment case studies

These case studies illustrate some of the complaints we have dealt with recently about a wide range of investment matters.

24/10
pension policy - firm makes false allegations - ombudsman requires firm to apologise in person

Ten years after Mr G had set up a personal pension plan, the firm contacted his employer, RD Ltd, who contributed to the plan. The firm asked RD Ltd why it was still making contributions for Mr G, as his wife had contacted the firm several months earlier to report his death.

When RD Ltd confirmed that Mr G was still very much alive, the firm concluded that his wife must have said that he was dead so that she could get access to his pension. The firm asked to speak to Mr G on the telephone, but was told he had left early to visit his wife, who suffered from multiple sclerosis and had recently been admitted to hospital.

Later that day, the firm telephoned Mr G at home and told him that his wife had reported him dead. When he insisted that the firm must be mistaken, the firm suggested that Mrs G's illness might have prompted her actions. Since the firm was adamant that Mrs G had reported his death, Mr G felt he had no option but to ask his wife about this.

She strenuously denied having any contact with the firm at all. The situation understandably caused the couple considerable distress, especially given Mrs G's fragile state of health. After Mr G complained to the firm, it eventually agreed that it must have been mistaken, and it sent his wife some flowers. Dissatisfied with the firm's handling of the matter, Mr G brought his complaint to us.

complaint upheld
The firm should have checked its facts very thoroughly before it contacted Mr G. And the poor state of Mrs G's health magnified the couple's justified distress at the way the firm had treated them.

Initially, the firm maintained that there was no question of it paying any compensation. It said that the couple had not suffered any financial loss and the firm had no legal liability. Eventually, it offered Mr G £200. He refused to accept this, saying it was an inadequate amount. We agreed. We ordered the firm to pay him £400 and we said that a senior member of the firm's staff should arrange to visit the couple to hand over the cheque and apologise in person.

24/11
equity ISA - firm's actions prevent customer investing for that tax-year, but he suffered no loss

In March 2002, Mr K arranged to invest £7,000 into an equity ISA (Individual Savings Account) for the 2001/02 tax year. He completed his application and sent in his cheque in good time for the firm to complete the transaction before 5 April.

Mr K then went abroad on business. While he was away he realised he had forgotten to transfer funds into his current account to cover the cheque he had sent the firm. He rang the firm and discovered that the cheque had been returned unpaid. He claimed that during his telephone conversation with the firm, it had agreed to re-present the cheque. By the time it did this, there would be sufficient funds in his account.

When Mr K returned to the UK, after the end of the tax-year, he found that the cheque had been returned to him - the firm had not re-presented it. He complained to the firm, demanding compensation since it had lost him the opportunity to invest for the tax-year. The firm declined any responsibility so he brought his complaint to us.

complaint settled
We established that Mr K used his full ISA allowance each year and that he had sufficient funds to have done so in 2001/02. The firm's actions had prevented him from using his full ISA-entitlement for that tax-year.

However, when we looked into what would have happened to Mr K's investment if the firm had re-presented his cheque before the end of the tax-year, we found that, because of poor stock market performance, the value would have fallen by approximately £400.

So although Mr K had lost his ISA allowance for 2001/02, he had not made a financial loss. Indeed, he had been able to earn interest on the money he would otherwise have put into his ISA. Any loss in tax benefits would be outweighed by the advantage he had already received. Although inadvertently, he had benefited from the firm's failure to represent his cheque so we did not require the firm to pay him redress.

24/12
unit-linked endowment policy - mis-sold as savings vehicle

Miss C's complaint concerned the firm's mis-selling of a unit-linked endowment policy, together with life assurance, when, as an 18-year-old student, she had sought advice on a means of saving for the future.

She said she not wanted to take any risks with her financial affairs and that, since she had been single at the time with no dependents, there had been no need for any life cover.

The firm rejected her complaint. It said that the adviser had discussed various different options with Miss C at the time of the sale, and that he had not thought life cover was right for her circumstances. However, he had arranged the life cover for her because she said her parents had told her they thought it was essential.

complaint upheld
We upheld Miss C's complaint on several grounds.

There was no evidence that the adviser had properly determined Miss C's attitude to investment risk. The products he had sold were inappropriate for her circumstances at the time, and there was no evidence that he had discussed any alternatives with her. In the "fact find" he had incorrectly described the endowment policy as carrying a low risk.

He had also noted that the aim of the investment was "for future efficient repayment of mortgage and loans". This had not been Miss C's intention at the time of the sale.

We therefore ordered the firm to refund, with interest, the premiums she had paid for both policies.

24/13
share capital restructuring - shareholder's loss of expectation

Mr T held shares in XY Ltd. He had read in the press that it intended to return unneeded capital to shareholders by restructuring its share capital. It would do this by replacing each existing holding of 21 old "ordinary" shares with 17 new ordinary shares, and 21 "B" shares.

XY Ltd was offering special purchase arrangements for shareholders who sold these "B" shares as soon as they received them. The terms of the "B" shares were intended to discourage shareholders from keeping them, with the aim of:

  • reducing the number of ordinary shares in issue;
  • providing shareholders with a proportion of the original shareholding's value as capital payment, by purchasing and cancelling the "B" shares; and
  • making a corresponding reduction in XY Ltd's capital reserves.

Mr T contacted his stockbroker ("the firm") for more information. The conversation he had with the firm led him to believe that the ordinary shares would have approximately the same value as his existing shares and that the "B" shares would be a bonus. So when he subsequently received 809 ordinary shares and 1000 "B" shares, he decided to sell the "B" shares immediately. He received £800 for them.

However, he then realised that the ordinary shares he received were worth £700 less than the firm had led him to expect. He complained to the firm, asking it to send him £700 to bring the value of these shares up to the amount he had thought they would be worth.

The firm would not do this. However, it offered to repurchase the "B" shares for him from XY Ltd, if he returned the £800 he had received for them. This would put him back in the position he would have been in before he sold the "B" shares. At this point, Mr T brought his complaint to us.

complaint rejected
We decided that the only loss Mr T had suffered was one of expectation, because he had thought that the ordinary shares would be worth more than they were.

Mr T had never been entitled to receive the £700 he asked the firm to pay him. His only options had been to sell the "B" shares, or to keep them to sell at a later date.

We explained this to Mr T and, on our recommendation, he accepted the £50 that the firm offered him as a goodwill gesture.

24/14
unit trust - customer dissatisfied with firm's information about fund's prospects

For several years, Mr M had held a unit trust investment with the firm. He had not obtained advice before putting his money in the unit trust since he considered himself sufficiently knowledgeable to be able to arrange his own investments.

In March 2000 he became concerned about his investment's performance. He emailed the firm for further information about the fund, so that he could assess its future prospects. In response, the firm directed him to the page on its website that dealt with queries of this kind.

The firm did not hear from Mr M again until March 2002, by which time the value of his investment had fallen further. He complained that when he had contacted the firm two years earlier, the information on its website had not been detailed enough for his needs. He argued that if the firm had given him more detailed information when he had asked for it, he would have sold his investment right away. So he considered the firm liable for the difference between what he would have got for his investment if he had cashed it in during March 2000, and its current value.

Dissatisfied with the firm's response, Mr M brought his complaint to us.

complaint rejected
The relevant pages of the company's website were no longer available but we obtained copies of the firm's annual fund reports. These reports provided exactly the kind of detailed information that Mr M had said that he needed. Like all the firm's unitholders, he had received regular copies of these reports. They were also available on the website.

In our view, the firm had taken reasonable steps to provide Mr M with information about the fund. It was not responsible for any losses he had suffered by retaining his investment. We also noted that Mr M should have gone back to the firm at the time if he was dissatisfied with the amount of information the firm had provided in March 2000, in response to his query.

24/15
Maturing pension policy - firm blamed for revealing details to policyholder's separated wife

Shortly after Mr W's pension policy matured, his wife, from whom he had been separated for some time, contacted him about it. Reluctantly, but voluntarily, he gave her 50 percent of the maturity value.

Mr W had not told his wife about the policy and he was convinced that she had been told about it by the firm, or by someone related to one of the firm's employees. He complained to the firm that he would have been able to keep all the proceeds for himself, had it not been for its "intervention". When the firm rejected his complaint, he came to us.

complaint rejected
There was no evidence that any of the firm's employees or their relatives had revealed details of the policy to Mrs W. And although Mr W put forward a variety of alternative ways in which his wife might have learnt about the policy, we found nothing to back any of his theories.

We established that the policy was solely in Mr W's name and had not been assigned to anyone else. If he had chosen, voluntarily, to give his wife half of the proceeds, then this was entirely a matter between him and his wife.

Neither the firm nor anyone else could be said to have caused him financial loss. We therefore rejected the complaint.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.