Financial Ombudsman Service claims

The Financial Ombudsman service has given a decision arising out of advice given by a bank to invest £3,300,000 in a bond issued by insurer AIG. The clients were advised by the bank to invest the sum in the Premier Access Bond Enhanced Variable Rate Fund in early 2008. In the wake of the Lehman Brothers collapse the fund was suspended.

The clients managed to withdraw from the fund and through surrendering their investment and through the exit plan recovered £2,845,000.The clients still suffered a significant financial loss.The bank who advised on the investment rejected their initial complaint.

A complaint was made to the Financial Ombudsman Service (FOS). The FOS upheld the complaint The Ombudsman considered that the clients were inexperienced investors and didn’t want to risk their investment but wanted a return which was better than deposit accounts.

He considered that this fund wasn’t suitable and they weren’t alerted to the risks from the information they were given. He said the bank should have been able to identify that this product represented some risk to capital.

The decision is the opposite of that in the case of Adrian Rubenstein v HSBC Bank plc (2011) EWHC 2304 (QB). They were the same products although Rubenstein was advised in 2005 as opposed in this case in early 2008. That may be the difference, being so close to the markets collapse.

In the Rubenstein case whilst finding that the advice was wrong the judge found that the loss was not foreseeable. In this case the product was recommended much nearer to the collapse.

“There is, therefore, a strong indication from the written material that Mr and Mrs V were primarily concerned with secure ‘cash investments’ over the short term. It is perhaps noteworthy that the period when this investment was advised was at around the time of the widespread publicity for the problems experienced then by Northern Rock – when six months earlier queues had built up outside its branches and some customers feared they would lose their deposits (although, of course, by the time the investment was made it was clear that no customer would in fact lose any money as a result of Northern Rocks’ problems).”

The FOS referred to the circumstance which prevailed at the time. The case of Rubenstein is the subject to appeal. The clients were awarded £100,000 plus interest in this case.

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