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Investment – poor performance of portfolio – misleading advice about return – clear statement of risk in plan – failure to report
Upon their retirement in 1993, Mr and Mrs M formed a trust through which to invest their retirement savings. In 1997 the trust invested $200,000 in accordance with an investment plan prepared for it by its bank. The investments recommended by the bank represented what it described as a “balanced” or “medium risk” portfolio.
Seven years later, in November-December 2004, the trust withdrew its money from the bank’s investment plan. It had for some time been expressing concerns that the plan was producing low overall returns, and that some of the funds in the portfolio had lost value. When the withdrawal of the investment had been completed, the overall benefit to the trust over the seven and half year term of the investment amounted to approximately $41,000. The trust then reinvested its money on term deposit.
The trust complained to the bank about the performance of its investment. In particular, it was concerned that, although three of the funds forming part of the investment portfolio had suffered losses from time to time, the fund manager had done nothing to correct this. It also complained that the bank had assured it of a minimum return of 5% net per annum on the total investment. This return had never been achieved.
The bank was unable to resolve the trust’s concerns, and a complaint was then lodged with my office. Unlike most complainants with concerns about investment products, the trust did not contend that the investment had been mis-sold or misrepresented, but argued that, once losses started to occur, in particular on the three funds that lost value, the bank should have done something to stop them. This indicated a misunderstanding on the part of the trust about the nature of its investment. The question for me was whether the bank was in any way responsible for this misunderstanding.
After a thorough investigation I considered that the bank had indeed overstated the probable benefit to be derived from the investment. It was clear from the evidence that the investment adviser had led the trust to believe that it would receive a net return of more than 5% per annum. However, the written investment plan prepared for the trust contained clear statements that the bank did not guarantee the performance of any product, and that any projected rates of return were to be read in conjunction with the caveats set out in the investment plan. There was therefore insufficient evidence to make a conclusive finding that the bank had provided the trust with misleading advice and/or had misrepresented the extent of the risk associated with the investment.
It was clear that the trust had concerns about the management of certain parts of its investment. However, the three funds about which it was particularly concerned had been affected by the downward trend in financial markets affecting the performance of all types of equities and international shares investments in late 2000 and early 2001.
I did not identify any grounds for finding that the bank should reimburse the trust for the losses it claimed to have suffered on the three funds in question (approximately $23,000). However, it was clear that the trust was dissatisfied with the overall performance of its investment over its seven and a half year term. I was concerned that the bank had not provided regular six monthly reports on the performance of the investment, as it had promised when the investment was made. Therefore I suggested that, as a gesture of goodwill, the bank should refund to the trust the approximately $4,900 in fees charged when it first made its investment.
Both the trust and the bank agreed to settle on this basis.