ISAs  

Lloyds criticised for failing to explain realities of fund

Lloyds criticised for failing to explain realities of fund

The Financial Ombudsman Service has rejected Lloyds Bank’s argument their adviser would have clearly explained the risks of a fund to a client back at the turn of the century.

A client, referred to as Mrs C, met with a Lloyds Bank adviser in 2000 and agreed to pay £50 each month into an Isa invested in the Worldwide Growth fund. 

At the time of the sale Mrs C was 45-years-old, married and was receiving about £1,000 income each month from her job. 

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She had no savings or investments. 

Lloyds argued the adviser would have clearly explained what investing in a medium-risk investment meant and Mrs C chose to invest in the Worldwide Growth fund having been fully informed of the options available to her.

But ombudsman Dan Picken said he didn’t believe Lloyds adviser did clearly explain the risks associated with the fund otherwise he wouldn’t have invested in it.

The ombudsman felt the fund was too heavily exposed to offshore equities and therefore unsuitable for Mrs C. 

Mr Picken said: "The Worldwide Fund is an almost entirely equity based investment with a geographical spread, thereby presumably incorporating currency fluctuations. It is therefore quite volatile and there is a significant chance of large losses (but also gains). 

"Given Mrs C’s circumstances, it is my view unlikely she would wish to place her money at so much risk. 

"I appreciate that Mrs C may have chosen this fund herself and that she agreed with the risk rating the adviser carried out, but the adviser had a duty of care to ensure the recommendation was right for her. 

"The adviser should have explained the realities of being in a higher than suitable risked fund and what the consequences could be. However, I think it’s unlikely this type of discussion did take place."

Lloyds Bank was told to compensate Mrs C by comparing the performance of her Isa with half the investment in FTSE UK Private Investors Income Total Return index and the other half in average rate from fixed rate bonds and paying her the difference. 

emma.hughes@ft.com