Mis-Sold Investments

Mis-sold investments are the deliberate or reckless sale of an investment. If an investment was misrepresented to you or was unsuitable for your needs then you could have been mis-sold the product. Many well-known financial institutions have previously been found to have provided poor advice – or failed to take into account their customer’s needs when selling investment products. Some common areas of concern include if the advisor did not explain the risks involved, how money would be invested in a venture – and a failure to accurately assess customers’ needs, therefore leading to an unsuitable investment. If you purchased an investment and any of these apply to you then you may be have been mis-sold the product and therefore may be able to make a claim.

Some of the more common mis-sold investments include:

  • Stocks and shares ISAs
  • Open Ended Investment Companies (OEICs)
  • Bonds- including Investment Bonds and With Profit Bonds
  • Managed Portfolios
  • Personal Equity Plans (PEPs)

Stocks and Shares ISAs

‘Individual Savings Accounts (ISAs) were introduced in 1999 and act as a tax-free wrapper for savings. They are generally offered by banks or building societies but investment firms can also offer their own products. You can use them to save cash or make investments without having to pay income tax or capital gains tax.

There are five main types of ISA, but Cash ISAs and Stocks and Shares ISAs are two of the most prominent products.

One issue found previously is that when applying for an ISA, customers may have been led to believe that Cash ISAs and Stocks and Shares ISAs were the same product. However, whilst both offer tax advantages, they are very different products which carry different levels of risk. A cash ISA is simply a tax-free savings account, whereas a Stocks and Shares ISA is a tax-efficient investment account which allows you to put money into a range of different investments, including shares, bonds and investment funds.

When you were sold your stocks and shares ISA, you advisor should have discussed certain things with you. These include your financial situation, how a stocks and shares ISA differs from a cash ISA, the associated risks of the investment, your existing investments, and the investment’s potential risk. If they did not discuss these things with you, then you may have been mis-sold a stocks and shares ISA, and you may be able to make a claim.

Open Ended Investment Companies (OEICs)

In the UK, Unit Trusts and OEICs are the most common type of investment fund. These are often promoted in the media and are popular with small private investors – as they allow investors to pool their money together if they have smaller amounts to invest. Both Unit Trusts and OEICS are run by a fund manager, who will buy stocks and bonds for holders of a fund in an ‘open-ended’ format (they can create new units/shares to meet demand or cancel the units/shares of investors exiting the fund). However, investors purchase units from Unit Trusts and shares from OEICS.

The two funds also differ in terms of how they are priced with Unit Trusts having two prices (a ‘bid’ price and an ‘offer’ price) and OEICS having only one price per day (based on the ‘Net Asset Value’ or ‘NAV’ of the underlying assets of the fund).

Both types have proved popular in recent years because they can offer a practical and affordable way for clients to diversify across different asset classes without the pressure of having to routinely make calls on individual stocks and shares, particularly if they don’t have the expertise. Buying units or shares can ultimately provide a much wider spread of investment than could have otherwise been achieved with the same amount of money. OEICS have also increased in popularity due to their simplified structure, with many Unit Trusts converting into OEICS in recent years.

However, any investment carries risk and if you purchased a Unit Trust or OEIC and the risks were not properly explained to you – or your needs were not appropriately assessed – then you may have been mis-sold the investment and could have a claim.

In addition, both Unit Trusts and OEICS charge fund holders management fees. Typically clients can expect to pay between 2 and 6% on their initial investment, with annual fees thereafter which range from 0.75% to 1.25% (but could be up to 2%). If a fund is not performing as well as expected then over time these accrued fees can have a real impact on the capital invested.

If you purchased units or shares in a Unit Trust or OEIC but were not properly informed about the cost of management fees then you may have been mis-sold the investment and could claim.

Consequently if your adviser did not explain the risks or charges to you – or did not take into account your attitude to risk and capacity for loss – and you have lost money or the investment has not performed as expected then you may have been mis-sold the product and could have a claim.

Bonds

Bonds These are Investment Bonds and With Profit Bonds.

Investment Bonds

An Investment Bond is a lump sum life insurance policy which you can invest across a variety of different funds. It is usually paid as a single premium. You can invest it into a fund of your choice. The amount you receive on surrender or death depends on how well the investment performs.

Advisors were encouraged to sell customers as many investment bonds as possible as they had large commissions and bonuses. Because of this, many were advising customers to sign up for investment bonds even if they were not suitable for their needs or if they did not best fit the customer’s requirements.

If an advisor has sold you an investment bond without informing you of all the risks associated with them, such as management charges and surrender penalties, then you may have been mis-sold the investment and may be able to make a claim.

With Profit Bonds

With Profit Bonds are generally a low-risk investment. In a With Profit Bond, a lump sum is put into different asset classes. This spreads the risk by investing in things such as commercial property. They can provide income or capital growth, and an annual bonus is added depending on the performance of underlying investments.

There are various charges and penalties that can come with a With Profit Bond. These include Market Value Reductions. If you were not informed of the risks associated with the With Profit Bond, then you may have been mis-sold the investment and may be able to make a claim.

Managed Portfolios

One of the major parts of an investment strategy is to spread the risk. Usually, you would do this by pooling your resources with others and utilise different investment schemes. However, if you have sufficient capital, an advisor may recommend you invest into a Managed Portfolio. This is usually the case if you have more than £50,000.

However unsuitable or incorrect advice from your Manager can still lead to you losing money. When you purchased the Managed Portfolio, your advisor should have considered many things. These include your financial situation, your future intentions for the investment, your existing investments, and your understanding of a Managed Portfolio.

If you have had incorrect or unsuitable advice, or the advisor did not consider your circumstances before selling you the Managed Portfolio, and you have lost money, then you may have been mis-sold the Managed Portfolio, and you may be able to make a claim.

Personal Equity Plans (PEPs)

Personal Equity Plans (PEPs) were popular in the past. They allowed people to invest in the stock market, enjoy the profits from it, and not have to pay any income tax or capital gains tax. Individual Savings Accounts (ISAs) replaced them in 1999. After this, existing customers could no longer add to the investment. However, they could still enjoy the same tax advantages.

The two main problems with PEPs were that not everyone was suitable to purchase one, and the high-risk nature of the product was never explained clearly by the advisors who sold them. This led to many people losing a lot of money and not understanding how or why they had lost it.

When the advisor sells the investment to you, they should discuss the risks with you. These include the impact of an underperforming PEP, the advantages and disadvantages of the PEP, your level of investment experience, alternative products, and your general attitude towards risk.

If the advisor failed to discuss any of these things with you, and you have lost money, then you may have had a mis-sold investment, and you may be able to make a claim.

How We Can Help With Mis-Sold Investments

Here at The Compensation Experts, we know that any mis-sold investments can be costly. That is why we are here to help. To see if you may be able to make a claim for mis-sold investments, contact us today by filling in our contact form, or by calling us on to speak to one of our friendly knowledgeable advisors.