Lloyds has had to cough up cash after a claims management company chased it for compensation for advice given back in 1999.
Back in the last century, when the purchase of HBos was still way off into the future, a Lloyds Bank adviser recommended a man in his late fifties who had recently retired opt for a unit trust, a guaranteed stock market bond and invest in a personal equity plan (Pep).
Spurred on to retire early following the death of his parents in 1997, the client’s income at the time was his pension which was about £7,000 per year gross.
The client, referred to as Mr S, had almost all of his capital - about £66,000 - on deposit and he also held a regular monthly contribution Pep.
The adviser recommended he invest £20,000 in a unit trust invested in the High Reserve fund (described as low/medium risk); £19,000 in a guaranteed stock market bond and a further £5,000 in his existing PEP split equally between the High Reserve fund and the FTSE 100 fund (described as medium risk).
He surrendered those investments in 2005, 2006 and 2000 respectively but it wasn’t until 2017 that a claims management company made a complaint to the business on his behalf.
The claims management company said the investments were too risky for him and too much of his capital had been invested.
The claims manager also said that the investments had been made at a time when Mr S was emotionally vulnerable because both his parents had passed away in 1997.
Lloyds did not uphold the complaint arguing Mr S had available capital to invest and that after making the investments he was still left with a reasonable amount on deposit.
It pointed out the stock market bond guaranteed his money back at the end of the term and the risk posed by the investments was in line with his attitude to risk.
But the claims management company didn’t accept this argument and took the complaint to the Financial Ombudsman Service.
An ombudsman adjudicator initially backed Lloyds as she was not convinced that the recommendations were unsuitable.
While the adjudicator took into account what had been said about Mr S being emotionally vulnerable, she felt that a reasonable amount of time had passed so she was not persuaded that the recommendation had been made too soon.
But the claims management company disagreed, demanded an ombudsman step in to review the case on the basis too much of Mr S’s capital had been put at risk of being lost or producing no return.
The ombudsman stepped in and did a U-turn on the decision of the adjudicator.
The ombudsman agreed with the claims management company that overall too much of Mr S’s capital had been invested taking into account his circumstances and objectives.
Lloyds argued the ombudsman was wrong to U-turn on the adjudicator’s decision as Mr S’ short term needs were discussed with its adviser and the fact find noted he required a minimum liquidity of £10,000.
After investment Mr S was actually left with around £22,000 in cash based accounts for those needs and emergencies so Lloyds argued it was reasonable to commit his other funds over the medium term.
A spokesman for Lloyds argued the advice in 1999 should be considered by investment standards generally applied at that time rather than by current standards.
However Lloyds argument fell on deaf ears.
In her final decision, ombudsman Julia Chittenden said: "I am not convinced he was in a good position to assess what sort of emergency funding he might need in the future and I think he relied upon the advice he received.
"The fact that Mr S held on to the majority of the investments for the recommended terms doesn't, of itself, mean that the advice he received was suitable.
"I don't think the recommendations made by the business gave sufficient consideration to his income which was not particularly generous. I think they created a risk, with so much of his money being tied up, that he would have to dip into his savings over the years."
Lloyds was ordered to compare the performance of 25 per cent of Mr S's investments with that of the benchmark and pay the difference between the fair value and the actual value of the investments.
This ruling comes after Fos was vindicated as unbiased by independent review in July. The review found there was no institutional bias against consumers, however it raised concerns about the knowledge of some investigators.
Earlier this year the Personal Investment Management and Financial Advice Association (Pimfa) had called for a review of past cases at the ombudsman after an investigation by Channel 4’s Dispatches programme alleged some decisions may have not been fair to consumers.
emma.hughes@ft.com
