Fos finds Santander gave unsuitable investment advice

Fos finds Santander gave unsuitable investment advice
(Holly Adams/Bloomberg)

Santander has been ordered to compensate a customer after the Financial Ombudsman Service found it had given unsuitable investment advice to a first-time investor which did not reflect his attitude to risk and left him with too little liquid savings.

Ombudsman Catherine Langley concluded the Santander adviser should have done more to explain the risk of loss given the complainant's lack of investment experience and that the recommendation to invest £50,000 was ‘unsuitable’ advice.

The 56-year-old complainant, who the Fos called Mr M, was self-employed with a total of £56,600 in savings for his retirement and did not have a company or personal pension.

Mr M said he was ‘pestered’ by Santander in 2006 to have a meeting about his savings. 

During the meeting he was advised to invest £50,000 split equally between two funds within an investment bond: a distribution growth fund and a property fund with a timeframe of five plus years. 

Mr M became concerned about losses the investments were sustaining and surrendered both funds in October 2008, suffering a loss of £9,960. 

Despite Santander arguing it “had no control over the global financial crisis and didn’t control market conditions”, Langley felt the complaint should be upheld. 

She found 63 per cent of the complainant's investment was within a single sector within a single asset class – commercial property in the UK which suggested diversification wasn’t explained to Mr M and that it was unlikely he would have taken that risk if it had been properly explained to him. 

Langley said Santander should have demonstrated how Mr M’s attitude to risk was arrived at and that some evidence was needed that Santander adequately described the level of risk to Mr M.

Langley also said that while the 2006 meeting wasn’t to discuss Mr M’s pension arrangements, Santander should have established more information about the complainant’s situation to ensure suitable advice was given.

She said Mr M was overexposed to risk as a result of more than half his investment being within one sector: “Even before the stock market downfall in 2008 there was always a risk inherent in investing in property.”

In conclusion, Langley was satisfied that the advice given to Mr M was not suitable for him taking account of his personal and financial circumstances and awarded compensation.

Initially Mr M thought his loss was simply “bad luck” but after reading an article about the mis-sale of investments he made the decision to complain to Santander arguing that the amount he was advised to invest exceeded his capacity to bear a loss. 

Mr M also stated that the advice to invest such a high proportion of his retirement savings was highly excessive for a first-time investor with a cautious risk profile and that the adviser may have recommended the investments, not in the best interest of Mr M but because of the £3,500 commission received.

Furthermore, Mr M argued that the advice breached FCA principle nine - a firm must take reasonable care to ensure the suitability of advice and discretionary decisions for any customer who is entitled to rely upon its judgement - and principle  six - a firm must pay due regard to the interests of its customers and treat them fairly.