When his investments performed poorly, and concerned he’d made a mistake, Toby complained to his adviser. When they told him to wait because they were long term investments, he asked us to investigate for a better result.
What happened
Toby had built up £65,000 in savings from buying and selling vintage cars. When he mentioned to his sister that he wanted to invest some of the money, she gave him the phone number of a financial adviser she’d used in the past. Toby arranged an appointment to meet her.
During the meeting, the adviser asked Toby how he felt about taking a risk with his money. She explained that if he was willing to take some risk, he might have a chance of getting more growth on his money.
Toby told her he was interested in getting more growth, but wasn't too sure because he hadn't invested any money before. He agreed to answer some more questions about his attitude to investment risk to help the adviser work out what could be the right investments for him.
Toby answered the questions and the adviser told him that based on the answers he’d given, she rated his attitude to risk as between three and four on a seven-point risk scale, on which seven was the highest level of risk.
The adviser recommended that Toby invest £30,000 in a range of investment funds. She explained that they’d be chosen using a digital tool designed to ‘select and blend’ investment funds. Toby went ahead. More than three-quarters of the £30,000 was invested in shares on the stock market in the UK and overseas. Most of the rest was put into commodity funds investing in oil, gold and agriculture.
Each year, Toby received an annual statement for his investments. By the fourth year, his statement showed that their value had dropped considerably. Toby was concerned that he’d made a serious mistake, and complained to his adviser.
The adviser told Toby not to do anything at this stage, they were long-term investments, so there was a chance that they’d perform better in future. But Toby was still concerned by the drop in value, so he brought his complaint to us.
What we said
We spoke to the adviser who pointed out Toby had been prepared to take some risk to get a better return on his money. However, when we compared the investments chosen with the adviser's notes about Toby's attitude to risk, we were satisfied that the adviser had taken more risk with Toby's money than he’d told her he wanted to take.
We accepted that the digital selection tool the adviser had used was standard across the investment world. But we thought the adviser had still been responsible for making sure the investment she’d advised Toby on was appropriate for his circumstances.
We told the adviser to work out how Toby's money would have done if it had been invested in line with the FTSE APCIMS stock market income index.
Toby had wanted his investment to produce a reasonable return and had been prepared to take some risk. While the FTSE APCIMS stock market income index includes UK and overseas shares, it doesn’t include as many as there had been in the funds the adviser had selected for Toby. It also has a mixture of other investments that are usually considered safer, for example, UK government gilts. We decided that by comparing Toby's actual investment with this index, the adviser could compensate him fairly.