Clare and Fiona contacted us because of investment advice they received, but didn't get as much of a return as they hoped.
What happened
Clare and Fiona were called by their bank and offered a financial review to see if they could get a better return on their savings. They accepted and met with an adviser who completed a fact find (information gathered about the customer’s circumstances) to assess their circumstances and needs.
Clare and Fiona were aged 51 and 50. They both worked and owned their own home. They had savings of £40,000 on deposit and around £10,000 in stocks and shares ISAs. The fact find recorded they wanted a better return on their savings and wouldn’t need access to their money for the next five years. But they didn’t want to put their money at risk.
Clare and Fiona accepted the adviser’s recommendation and invested £30,000 in a capital protected structured product. It guaranteed to at least return the capital invested at the end of the four-year term. Any growth would depend on the performance of the FTSE 100 index, with the investor receiving 75% of any rise in its value. So if the index was 40% higher at the end of the investment term than it was at the beginning, it would pay out the amount invested plus 30% growth.
When the investment finished, Clare and Fiona received back their capital plus a very small amount of growth. They said they were told they’d get a much higher return and wouldn’t have invested if they’d realised they could make so little. They contacted us because they didn't think the advice was suitable.
What we said
We reviewed the documentation they were given, including the adviser’s recommendation letter and the product literature. We were satisfied the product was relatively straightforward and the literature clearly explained how it worked and that it might not generate a return.
We also felt the product was generally suitable. In particular, it didn’t put their money at risk and they were prepared to tie it up. It also offered the potential of a better return than the interest they’d been getting.
Our concern was that Clare and Fiona had been advised to invest too much of their money. As well as recommending suitable products, giving suitable advice involves making sure a customer has an appropriately balanced and diversified portfolio.
We thought the advice to invest 75% of their available savings (and 60% of their total capital) meant too much of their money was dependent on the fortunes of a single product. We didn’t think Clare and Fiona were left with a diversified portfolio. We didn’t think the adviser should have recommended they invest any more than half the amount they did.
We couldn’t be sure how Clare and Fiona would have invested the remaining £15,000 if it hadn’t have gone into the structured product. But as they were discussing their arrangements with the bank’s adviser, we felt they would most likely have ended up putting it in a four-year fixed-rate account with a guaranteed return at the end of the term.
We said the bank should compare the return they would have got if they’d invested £15,000 in the bank’s four-year fixed-rate account available at the time with 50% of the amount they got from the structured investment.
We told the bank to pay the difference as compensation, plus simple interest at 8% from the date the structured investment ended. We partially upheld Clare and Fiona’s complaint.