Stomach-churning losses are a bitter pill unlucky investors often swallow in silence. But if you've been mis-sold a bad investment, you should speak up. Unfortunately, forming a complaint can be mind-boggling, but the Financial Services Authority (FSA) is cracking down on the issue, and the Investors Chronicle is doing its bit to help by helping readers fight back against suspected mis-selling. In a new series, we show you how to safeguard against buying bad advice, how to spot when you've been mis-sold an investment and what you can do to claw back losses if your independent financial adviser (IFA) is at fault.
Reader case study
*Names have been changed and the IFA in question is not being revealed as publicity may affect the investor's case for complaint, which is currently in progress.
Feeling bearish after 2008's financial crash, former Goldman Sachs corporate finance executive Barbara Cooper's* eyes lit up when a good friend told her how brilliantly her commodity funds were doing. She immediately wanted a slice of the action and took some fresh advice from her friend's IFA.
But fast-forward three years and she'd lost over a third of her wealth. Mrs Cooper believes she has been a victim of mis-selling by IFA X* and is currently issuing a formal complaint. She is demanding the £358,420 she lost since taking the company's advice be repaid in full. In 2009, she had a healthy portfolio of investments totalling £1,104,662, but by 2012 the value of these assets had plummeted to £746,242.
Upon taking advice from IFA X, in 2009 Mrs Cooper surrendered £825,000 she had in an AXA with-profits bond. It was performing well, but she thought she could do better. So, as advised by IFA X, she transferred the funds (along with £25,000 of other personal money) into a Canada Life Offshore Bond - invested in a fund managed by IFA X. Through this investment, Mrs Cooper's money was heavily invested in commodities such as gold and crude oil, as well as a significant chunk in cash, to "balance the risk". In cashing in her with-profits bond, she incurred a hefty £46,912 capital gains tax bill. But she let this slide as she trusted the IFA's advice that this investment would have her laughing in the long run.
She also transferred her Halifax Stakeholder Pension worth £207,750 to be managed by IFA X in a self-invested personal pension (Sipp), incurring sizeable transfer charges and a chunky initial charge on the Sipp. She expressed concern when both investments started to lose money, but her concerns were ignored.
Furious at the "incompetence" and "negligence" of IFA X, she launched a complaint against the company in a bid to win back at least some of her hard-earned life savings.
Adding fuel to the fire, Mrs Cooper's emails and phone calls to the firm were met with a frustrating wall of silence. They didn't want to know. But when the IC invited an external expert to review her case, we found that, while it looks likely that IFA X has mis-sold her financial products, her complaint would have never be successful because she had questioned the wrong points.
The huge loss she experienced was what really made Mrs Cooper's blood boil, but this alone is not a sound cause for complaint. Too heavy a focus on losses is a common pitfall for investors complaining about mis-selling, says Phil Bray, a spokesperson at Investment Sense. "Big losses can occur whether or not an investment was mis-sold and are not grounds upon which to base a complaint. Don't let your emotions cloud your ability to look at the real suitability of the investments. Getting it wrong means you can wave goodbye to your money for good."
But there were some issues Mrs Cooper could have raised with IFA X that might have forced them to sit up and take notice. First, she was not dissatisfied with her original investments because they were making money and suited her risk appetite. Given the whopping £46,912 she paid in capital gains tax after she was transferred out of the AXA with-profits bond and the fact that there seems to be little evidence that the new investment was more suitable than the previous one, the reason for the transfer could be a real cause for complaint - especially as the Canada Life Policy into which most of her money was moved was managed by a fund run by IFA X.
There is still no evidence that her previous investments were properly assessed - a requirement for the proper selling of investments. Mrs Cooper requested to see a copy of her risk assessment file, but IFA X withheld the data from her for six weeks, which is against FSA regulations. There is also a question mark over whether the funds she was placed in really matched her 'medium risk investor with an emphasis on wealth preservation' investor profile. The new investments could also be deemed as poorly diversified, despite sitting in line with IFA X's 'model portfolio'. These are complaints that could win her money back if they prove to be correct.
Mrs Cooper said: "This whole episode has been very stressful and has made me feel stupid. I trusted IFA X because it was were recommended to me by a very good friend, and it seemed reputable. But the way it has treated me has been appalling." She is still waiting to receive the files containing her risk assessment from IFA X so she can proceed with her claim.
How can you protect yourself from mis-selling?
A good way to safeguard yourself is to wise up to the warning signs you can expect before being mis-sold an investment. Stop and do not be afraid to ask questions. And do not proceed until you've got the answers that you are happy with. Danger indicators do not necessarily mean you are being sold something bad, but they may indicate potential problems ahead. Alarm bells should be ringing if any of the following occur:
■ An IFA tells you to cash in an investment you're currently happy with. If it's not broken, it might not need fixing. Making major changes to your investments can incur large fees and tax bills you wouldn't have to pay if you left your money where it was, so you need to make sure the benefits you'd get from making the change would outweigh these costs.
■ Your IFA claims to be independent but puts your money into funds the firm manages. Be wary of financial advisers that want to transfer your money into their own investment funds - especially if they are carrying an 'independent' label. If they have a vested interest in making direct profits from your cash, how do you know you can trust their advice?
■ Your portfolio is poorly diversified. If your IFA has ulterior motives for diverting your money into funds that aren't right for you, they may be more likely to funnel big chunks of the money into just a few funds, creating extra risks for you.
■ Your adviser can't produce your risk assessment. Your adviser is required to run proper risk assessments on your existing investments and your risk appetite. If you ask to see this they should have it readily available, so if they don't have it - there may be a problem.
■ You are offered something that seems too good to be true. It probably is.
What you should do if you want to make a complaint:
First of all, you should contact the regulated financial adviser directly. Make sure you keep a record of the conversation in case you need to provide evidence of it at a later date. If you aren't happy with their response, you can go to the Financial Services Ombudsman, which is a free and independent service that can deal with a whole range of complaints. And, if you're still unhappy, you can always take the company to court. You can find helpful details of this on the FSA website.
GET IN TOUCH...
If you believe you may have been mis-sold an investment or have concerns regarding any financial adviser, email Katie.Morley@ft.com.
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