FOS' latest edition of Ombudsman News contained some interesting insights into its approach to complaints concerning advice relating to UCIS investments.
As we mentioned in our recent post on the FOS' annual review, the FOS continues to receive a significant number of complaints in relation to UCIS. Ombudsman News followed up the annual review by flagging a jump in UCIS complaints since the FCA limited the promotion of UCIS in January 2014. The FOS speculates that the rule changes may have alerted investors to review the advice that they were previously given.
The FOS' comments were accompanied by a number of interesting case studies that provide an insight into the FOS' attitude to UCIS advice and the factors that the FOS may consider in deciding whether to uphold a complaint.
Five of the six published case studies show instances where the FOS upheld the complaint. Factors that the FOS appears to have taken into account in favour of upholding complaints include the following:
- A high percentage of the customer's assets being invested in UCIS (e.g. 40%, 80%);
- A customer's limited overall assets, low capacity for loss or limited ability to recoup losses;
- A "cautious" or "mixed" attitude to risk (although in one case study the customer had been assessed as "very speculative" and the complaint was still upheld as the FOS did not think that this reflected the customer's real attitude to risk);
- The customer's lack of previous experience of investing in UCIS;
- The UCIS failing to fit with the customer's stated investment objectives (e.g. because of a lack of liquidity);
- The UCIS involving gearing where this was not properly explained to the customer and/or where the firm cannot explain why less risky, non-geared funds had not been suggested;
- Risk warnings being buried in the middle of lengthy documents and not discussed with the customer; and
- A lack of evidence on file as to the steps taken by the firm to establish that the UCIS was suitable for the customer.
In the sole case study where the complaint was not upheld, the following factors appear to have influenced the FOS to dismiss the complaint:
- A "high" attitude to risk;
- Previous experience on the part of the customer of investing in UCIS;
- Disclosure of the UCIS risks both in the documents and through discussion at a face-to-face meeting; and
- The UCIS investment representing a small part of the customer's total investments (3% in the case study).
The rules prohibiting the promotion of NMPIs to ordinary retail clients will make UCIS mis-selling complaints far less likely in future but these cases are useful for those still recommending such investments or dealing with legacy liabilities.