The story
About 20 years ago Steven asked his financial adviser, Richard, to invest $8,000 in a growth portfolio for his son, Thomas. Steven intended Thomas to use the money in the future to buy a house or help pay for his education. Twenty years later, when Thomas wanted to buy a house, the investment was only worth $7,000.
Dispute
Steven felt aggrieved. He had paid Richard $1,100 for advice that would see his investment grow, not lose money. Steven agreed he had watched the investment under-perform over the years, but hoped that in the long term the investment would recover.
Richard was no longer providing investment advice, and Albert had purchased his business. Steven complained to Albert who agreed the investment return was disappointing. In a goodwill gesture, Albert offered to reimburse the $1,000 Steven had lost on the sum originally invested and refund the $1,100 adviser fee paid, but asked Steven to keep the settlement confidential.
Steven declined the settlement offer saying the confidentiality condition was unreasonable. Steven said he was aware of other retired and elderly people who had suffered as a result of failed managed funds. Steven felt strongly that his situation should be used to shed light on an area of general concern.
FSCL’s review
We encouraged Steven to accept Albert’s settlement offer. We explained to Steven FSCL is unable to investigate complaints about investment advice given before 1 April 2010. Although we can consider complaints about events occurring after 1 April 2010, we would also have to take into consideration whether Steven’s decision to remain in the fund, when he knew it was under-performing, had contributed to his loss.
We noted that Richard had left the industry and Albert was trying to correct a situation he did not create.
We also explained that while confidentiality was not a standard settlement condition it was not unusual. If we saw other complaints about the Richard we will bear Steven’s experience in mind.
Outcome
Steven reluctantly accepted Albert’s settlement offer. Steven remained of the view that managed funds have a poor reputation, and he should have been able to use his situation to warn others.
Lesson
If we had been able to investigate the complaint we would have wanted to make sure the product Richard recommended was suitable for Steven’s needs. If it was unsuitable we may have considered compensation appropriate. However sometimes, investment products underperform, or do not perform to expectations. It is a risk inherent in investment.
