Banks have paid out huge amounts in compensation for investment mis-selling in recent years, with complaints reaching a record high in 2013, but people are still largely unaware of the ways they can be mis-sold by their investment advisers.
As people continue to buy unsuitable products based on the advice they receive from their banks, we take a look at the current state of investment mis-selling in the UK.
UK investment advice still failing customers
According to a Financial Ombudsman Service (FOS) report, 1 in 5 mis-sold investment complaints turned into a formal dispute in 2014/15, amounting to 329,509 in total. Of the complaints dealt with by the service, 55% were resolved in the consumer’s favour.
One of the year’s most positive outcomes was for a couple who were mis-sold a number of complex investment products on the advice of deVere UK. They lodged a formal complaint against the company after seeking help from an independent financial adviser and were awarded £190,000 in compensation.
Commenting on the case, the adviser warned against investing in a product that looks too good to be true. He said: “The couple are not investment experts, which is why they paid a professional to do it for them, but clearly they were put into high-risk products.”
deVere “apologised unreservedly” for the incident and dismissed the manager responsible for selling the products – a good step towards protecting future investors from buying disastrous mis-sold products.
Unfortunately, not all cases are awarded compensation.
In what This is Money called a “heart-breaking mis-selling scandal”, Richard and Rita Kauffman were encouraged by Mint Financial Services to extend their mortgage by thousands of pounds to invest in an Integrity Cash Maximiser. Their financial adviser told them the product couldn’t fail.
Poor stock market performance and the rising longevity of stockholders meant that their investment began to falter. The couple were faced with the prospect of paying their remaining mortgage of £376,000 – or face repossession of their home. Tragically, as of August 2015, it looked as though the couple may lose their home.
Failing to account for health
Your investment adviser should take your health into consideration when recommending a product to you, especially if that product is long term. Sadly, there has been a noticeable recent trend of advisers failing to account for the health prospects of their customers.
Over 60,000 pensioners who were mis-sold retirement investment products are close to winning compensation after the Financial Conduct Authority (FCA) launched a forensic analysis of the conditions under which they were sold their products.
The analysis revealed that many of the individuals were not made aware of certain basic information; for example, that having diabetes or high blood pressure could boost their pay-outs by 20%. In some instances, retirees missed out on tens of thousands of pounds throughout the course of their retirement. The same research also demonstrated that as many as 6 in 10 people were unaware of the full scope of their pay-out entitlement, and that information was often hidden in the small print rather than being made readily available.
One particular case was then 61-year-old Wayne Davies, who was a smoker at the time of the purchase and suffered from polio and heart disease. He purchased a ‘normal’ annuity (as opposed to an impaired life annuity) from Prudential in 2013 that was clearly unsuitable for an individual with health conditions. When he was diagnosed with cancer shortly after he made the purchase, Prudential would not return his calls.
Fortunately, a financial ombudsman managed to secure compensation for him equalling his initial investment minus income already paid. Prudential apologised to Mr Davies, saying: “We have reviewed our processes and tightened them to prevent such errors occurring in the future.”
Respected pensions expert Ros Altmann called Mr Davies’ cases “the worst I have come across in the 15 years I have been campaigning for reform of the annuity market.”
Between 2009 and 2013, RBS marketed an investment product called the Autopilot bond – which promised to pay interest based on the performance of several stock markets without risking the initial investment money. However, the name was misleading. The investment bonds were highly complex, and the majority of investors did not have the product adequately explained to them.
As a result, the bank is now offering compensation to 24,000 customers. A spokesperson for the bank admitted that it was a “complex product” and that it had been offered to customers “who may not have been able to fully understand it.”
They stated that they would be giving all customers the option to switch to a fixed interest rate, to close the Autopilot product and receive an interest payment, or to remain with it if they are happy with the terms and conditions. RBS also added that “the product is no longer on sale and RBS advisers have been retrained.”