Upgrade to ChromeUpgrade to FirefoxUpgrade to Internet ExplorerUpgrade to Safari

The oft-heard joke about investments that can go down as well as plummet is proving all too true for many investors at the moment. Some funds have taken a hit through poor market performance, and investors’ financial plans or retirement prospects have been dealt a severe blow.

The majority of capital investments will naturally vary with the state of the economy. Banks and building societies pay lower interest rates, and other investments are worth far less than was paid for them.

Most investment products are marketed as limiting the exposure of client funds to the fluctuations of share prices, by not putting all the eggs in the same basket. The more holdings an equity-based fund has, the less exposed it is, or so the theory goes.

These products themselves will have different investment strategies – some riskier than others – and this must be carefully considered by investment advisers when recommending them to clients.

Independent financial advisers, stockbrokers and other investment advisers have a legal duty to ensure that their investment recommendations are suitable for their clients. That involves understanding the client’s investment objectives and attitude to risk.

Providing competent investment advice is a complex task. Matters to consider for each investor include: –

• are capital growth, or income generation, or both desired ? This will vary according to many factors including the lifestyle, family situation and retirement aspirations of the client;
• whether the client wants as much protection of their capital as possible, or is prepared to accept a degree of risk in the hope of a greater return. Many nearing retirement want to safeguard previous capital growth rather than risk their money in the hope of a higher return – those who are some time away from needing their money may be happier to accept more risk of a capital reduction if the potential rewards are higher;
• whether the client has the same approach for all of their investments – some clients may nominate certain money they are prepared to risk for greater reward, whilst remaining cautious with the rest of their funds.

Given the above, it is not surprising that when investments drop, or fail, investors will wish to be quite sure that the advice that they received was correct and competent.

The Financial Services Authority has any number of rules of conduct setting out how advisers should conduct investment business. The adviser’s reasoning when recommending investments has to be recorded in a “suitability letter”. So there is a paper trail which, when clients question the performance of their investments, can be carefully considered. There is no doubt that poor economic conditions have exposed some unsuitable investment advice given during good times. Money has been invested in riskier places than the well-informed client would have wished or instructed, and lost.

The majority of reputable and competent advisers will take comfort that their advice was thoroughly researched and documented, and honestly given in the client’s best interests on available information at the time. There are, nevertheless, some who will have allowed their focus on these areas to be distracted, and who are being exposed as they face claims through the Financial Ombudsman Service or through the courts.

None of the above constitutes investment advice. Legal or investment advice should be taken from regulated insured professionals on individual circumstances.

For more information contact James Taylor .

Get in Touch

Request a call back

If you’d prefer us to call you back, just use the form below to give us your number and the best time to call. It would also be useful if you could give us some idea of what you’d like to discuss.