Case Notes
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Investment – fund wound up – investor living overseas – poor process – limited alternatives for investment
Mr H is a New Zealand citizen who has been living in England since 1996.
In early 1999 he invested $250,000 in two unit trust products sold to him by his New Zealand bank. He paid fees totalling approximately $6,300 when taking up the investments.
In 2002 Mr H withdrew his investment from one of the unit trusts, but left half of his original investment sum in the other unit trust.
In 2005 Mr H’s bank advised that it was winding up the remaining unit trust. When the investment was closed, Mr H received a sum of approximately $94,600, thus suffering a loss of over $30,000 on his original investment.
Mr H complained to the bank and later to my office. He believed that the unit trust investments may have been mis-sold to him in the beginning, given that he was living overseas. He had in the meantime been advised by bank staff that, because he was living overseas, bank policy meant that a term deposit was the only option available to him for the reinvestment of his funds.
After completing my investigation, I had some concerns about the sales process used when Mr H made his investments in 1999. Because he was resident overseas he did not have an opportunity to engage in any meaningful discussion of his investment with the investment adviser. The form outlining his circumstances, investment requirements and investment risk profile had been sent to him by post marked with crosses in places where he had to sign. It was fortunate for the bank that Mr H, because of his work background, knew how sharemarkets worked and also knew the risks associated with an investment in shares, and thus in the particular unit trust in which he was invested. A less knowledgeable customer could well have been misled about the nature and risks of the investment.
Although the bank was not very forthcoming about the date on which it introduced its policy not to accept investments into wealth products for residents living outside New Zealand, it appeared that the policy had taken effect some time after Mr H made his investment. Therefore, I could not say that, when Mr H made his investment, bank policy was such that the unit trust products ought not to have been offered to him.
There was no doubt that the bank was legally entitled to wind up the unit trust. The possibility that the unit trust could at some stage be wound up by the manager had been disclosed in the bank’s investment statement.
The bank had offered Mr H compensation of $2,000 for inconvenience. It recognised that, due to Mr H’s position as a resident overseas, the closure of the unit trust had caused him inconvenience. He would not be able to arrange to reinvest directly with the bank in a managed funds product, but would have to appoint someone to act for him in New Zealand under a power of attorney.
In addition to the compensation for inconvenience, I suggested that, as a gesture of goodwill, the bank should refund two-thirds of the initial service fee of $3,156 that Mr H had paid when investing in the unit trust. Given Mr H’s particular circumstances as a resident overseas, he had been deprived of an opportunity to continue with his managed funds investment, which he had anticipated retaining for approximately twenty years, until he retired, and would not easily be able to reinvest in a similar product. This amounted to a further sum of $2,085, making total compensation of $4,085.
Mr H’s complaint was settled on the basis of this proposal.