Investment performance disappoints  

Lara saw an online advertisement for a fund manager. Looking for somewhere to invest some of her savings, she spoke with an adviser at the fund manager to ask about minimum investment amounts and historic investment performance. After establishing that Lara had $300,000 to invest, the adviser offered to go through an advice process to determine the best investment strategy. Lara declined. She said she had money invested in various places and knew the risks. She told the adviser she was simply looking for a company who could get the highest return possible.

The adviser explained that if Lara did not want to go through the advice process, she could choose to invest in managed funds. The adviser warned this would come with a higher risk than setting up a diversified investment plan. After hearing about the impressive past returns for the funds, Lara chose two she wanted to invest in. The adviser told Lara she should not base her investment decisions solely on past returns. Lara said she was aware of the risks from her other investments, and understood the returns were not guaranteed.

Lara ultimately decided to invest $950,000 in July 2021. She asked for this to be split equally between two funds. Both funds were rated as ‘6’ on a 1-7 risk scale, with ‘7’ being the highest.

Within three months of making the investments, Lara started contacting the adviser to complain about how the funds were performing. She said she did not invest her money to lose it and asked why the funds were dropping badly. The adviser explained some of the factors affecting the funds. He also said the funds were expected to fluctuate in the short term but deliver returns over the longer term. The adviser offered Lara personalised advice again, but she declined.

After nine months, the value of Lara’s investments had decreased from $950,000 to around $705,000. Unhappy with this level of performance, Lara complained to FSCL.

Dispute

Lara complained about what had happened to the value of her investments. She said the funds had dropped significantly and asked the fund manager to refund her original investment.

The fund manager maintained they had not done anything wrong. They noted they had offered Lara personalised advice which she had declined. Acknowledging that the time since Lara had invested had been difficult for financial markets, the fund manager pointed to the information in their disclosure documents about risk and investment timeframes.

Review

Under our rules, known as our terms of reference, we cannot consider a complaint about the investment performance of a product, except where the complaint is about non-disclosure, misrepresentation, or misleading conduct. This meant we had to decide whether we had the power to investigate Lara’s complaint.

On the face of it, Lara’s complaint was not about non-disclosure, misrepresentation, or misleading conduct. To be sure about this, we listened to phone calls and reviewed the email correspondence between the parties. Based on this, we were satisfied Lara had declined personalised advice and had been warned about the risks. We noted both funds had a suggested minimum investment timeframe of seven to ten years and were listed as being suitable for long-term investors who could tolerate significant volatility.

Resolution

We told Lara we were unable to consider her complaint because it was about the performance of her investment.

Lara suggested her complaint was not solely about performance. Instead, she said it was about the companies the fund manager had chosen to invest in. She said these companies were too risky and did not have capacity for growth. We decided that this did not change the nature of Lara’s complaint. This was because the choice of which companies to invest in is what determine the performance of an investment.

Insights for consumers

We were unable to investigate Lara’s complaint because it was solely about investment performance. Despite this, Lara’s case has several important insights.

Consumers should think very carefully before declining personalised investment advice. In Lara’s case, declining this advice meant she did not get the benefit of an expert helping to ensure her investments were well diversified. She also missed the opportunity to have her attitude to risk assessed. Although Lara said she knew the risks of investing and was comfortable with them, her response when the funds went down in value suggests she was not happy with significant short-term volatility.

This case also shows the dangers of not properly considering the suggested minimum investment timeframes, and of relying on past performance when making decisions. Although Lara had been warned about this, it became apparent she was unhappy the funds did not live up to their past performance despite the recommended seven-to-ten-year minimum investment timeframe.