Memorable Cases

In this occasionsl series of blogs, I recall some memorable cases which I have dealt with.

Mr & Mrs G and a Barclays structured investment product

I see quite a lot of cases like Mr & Mrs G’s and it is fairly typical.

A structured investment is the catch-all term often used to describe a product whose returns are linked to the performance of a stock market index, but with some underlying guarantee in case the market suffers a major fall.

Mr & Mrs G were sold their investment bond by a salesman in a Barclays branch (the vast majority of these products were sold by bank branch staff). They were typical targets that the banks like to seek out: recently retired and with a tax-free lump sum sitting in a low interest savings account.

Barclays gave them the hard sell treatment and eventually they agreed to invest £25,000 in the product. According to Barclays, their investment was completely secure as it would be returned to them at the end of five years, even if the stock market was lower at that point. But if the market rose, they would participate in that growth. This was in 2004.

Four years into the product, the financial crisis hit and the stock market dived. At the maturity of the investment bond in 2009, Mr & Mrs G were amazed when Barclays told them they would be paid much less than their original investment. But we had a guarantee, they protested, we were told we would get at least our money back.

Barclays were unmoved. That guarantee, it told them, only held good provided the stock market did not decline by more than a set percentage during the five years. Of course, the market did decline by more during the crash. So Barclays took a big chunk out of their final payout, pointing to a clause in the documentation that enabled the bank to do just that. We did point this out in 2004, claimed Barclays.

Mr & Mrs G came to me, angry and convinced that this product term was not in fact pointed out to them by the bank in 2004, although they did confirm it was in the literature Barclays had given them. They just hadn’t read it, they admitted, and probably would not have understood it if they had.

My approach to this kind of case is to try to avoid getting into a debate with a bank about what was explained and what was not. Instead, I will try to concentrate on two other areas. Firstly, what is reasonable for a customer to read and understand, as most customers will take at face value what they are told face-to-face and just file the paperwork away. And secondly, irrespective of the product terms, was it actually suitable and meeting the customer’s needs?

There is always a duty on a customer to read the literature, but for me the greater duty is on the firm to explain the product fully at the time and make sure it is understood. There should be a record of how this was done in the sales file. But more importantly than that, how did the bank satisfy itself that the product was suitable and meeting the customer’s needs.

A lot of product recommendation reports in sales files are built up using standard paragraphs provided by the bank for its sales staff. It is hard to be certain from them exactly what was said in the meeting(s) and in what context. I found in this case that there was apparently some mention of the possibility of the final return being less than the amount invested, but it was very vague on when this might happen and how much less the final return might be.

This was a point in my favour. But I found much better arguments on the question of suitability and needs. Mr & Mrs G had never had any stock market related investment before. In fact, they had never had an investment product of any type – always keeping their money in simple savings accounts.