One size fits all or a tailored fit?

Share the wealth

In March 2004 Mike signed an agreement with Money Momentum to provide him with sharebroking and ancillary services. Mike wanted to invest in growth shares to increase his savings for a deposit to buy a house in a few years’ time.

Mike chose Money Momentum as he felt it had a good reputation and would provide him with quality advice. The advice was important to Mike as he was a relatively new investor. Money Momentum assigned Mike a broker, Matt, whom he could contact directly.  

Between 2004 and 2014, Mike used Money Momentum to buy and sell shares and securities. Before most transactions Mike would contact Matt and ask for his thoughts about the proposed transaction.

After 10 years of investing, Mike did not feel he was getting the rewards he should be and felt that more often than not, his investments had actually decreased in value. In November 2014, Mike complained to FSCL.  

 

The complaint

Mike complained that he had relied on Money Momentum’s advice and the advice had caused him a loss over the 10 year period. Mike believed that Matt and Money Momentum had been negligent in their advice and that the advice was unsuitable for him.    

 

Money Momentum’s position          

Money Momentum’s view was that Mike’s investments were ‘self-directed’ and Mike was ultimately responsible for the decisions he had made as to what shares to buy and sell. Money Momentum said that it was not contracted to provide Mike with specific, personalised investment advice. Money Momentum only provided general information and generic / class advice to Mike and what he did with that information was his choice.

 

FSCL’s involvement

We investigated and found:

  • The contract was more likely than not for an execution only type service, meaning that no personalised advice was given.
  • Mike’s investments were self-directed and Money Momentum were not monitoring or managing Mike’s investments.
  • The advice provided by Money Momentum was class advice and included information and recommendations based on commercial sectors, rather than tailored advice on proposed transactions and their suitability for Mike as part of an overall investment plan or strategy.
  • Money Momentum had disclaimers in its contract with Mike about providing an execution only service and about the general nature of the advice given.

 

Outcome

We found that Money Momentum complied with its contract with Mike in providing execution services and class advice to him. We found that Money Momentum and Matt had not been negligent in providing the general advice and the advice was reasonable in the circumstances.

Money Momentum were disappointed Mike was not happy with the service he had received and offered Mike a settlement. Mike gratefully accepted the offer.

 

Lesson

Sharebrokers can provide different levels of services to their clients. At a basic level, there is an execution only service. This can be combined with a basic advice package, where the client receives market research, generic class information and useful insights into the market. This advice is general and may not be suitable for all investors given their risk profile and their individual circumstances.

You can receive specialised tailored advice, active monitoring and management of your investments. These specialised services involve you undertaking a detailed risk assessment and frequent monitoring of your portfolio and its suitability for you as part of a personalised investment strategy. A higher brokerage fee and premium is usually attached to these specialised services.

It pays to ask what is included and what you are not getting when you sign the sharebroking agreement.