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Investment – retirement savings plan – balanced portfolio – switch to greater risk investment – only one meeting with advisor – poor process – not enough time for informed decision
In November 1999 Mr M, then aged 57, received a lump sum redundancy payment. His bank contacted him to suggest that he discuss investment options with one of its advisers. Following a meeting with the bank’s investment adviser, Mr M invested $120,000 in the bank’s retirement savings plan in a balanced portfolio.
Although at first the investment performed well, by mid 2001 its value had started to decline. Mr M, who was turning 60 in April 2002, went to see his bank manager a few months before his birthday with the intention of withdrawing his money as soon as he was entitled to do so upon his 60th birthday. Mr M said the bank manager talked him out of doing this, saying she was sure the value of the investment would improve.
By July 2002 the value of the investment had fallen further to approximately $107,000. Mr M decided that he could not afford to take the risk of his investment declining further in value, and withdrew from the retirement savings plan.
A few years later, after sharing with a friend the story of his poor investment, Mr M discovered that he could make a complaint about his experience to the Banking Ombudsman, and lodged a complaint with my office.
Mr M said that the bank’s retirement savings plan was promoted to him by the investment adviser as “the best thing since sliced bread”. While he had understood that returns on the investment could vary, he said that he was not told that the value of the investment could fall below the original capital sum invested. On the other hand, the bank said that Mr M had acknowledged at the time of investing that he understood that the value of his investment could decrease as well as increase.
My investigation established that Mr M was a relatively unsophisticated investor. He had invested solely in term deposits in the past. He had made his investment in the retirement savings plan on the strength of one meeting only with the bank’s investment adviser. The circumstances of that meeting had been rather disjointed, with the investment adviser leaving the office on at least three occasions. Mr M had not been given an opportunity to read the investment statement before deciding to invest. There was no evidence to show how either how Mr M had come to be assessed as a “balanced” investor, or that the bank had carried out any detailed analysis of his risk profile.
My view was that the bank had not followed best practice. In particular, I considered that it was poor practice for the bank to have completed a change to Mr M’s investment, when he was switching from a “safe” investment in the form of a term deposit to a riskier investment in a retirement savings plan, on the strength of only one meeting. Not only had there been insufficient time for Mr M to absorb all of the information about the new investment, but he needed to have time to assimilate several new concepts before being able to make a properly informed decision on a managed funds type investment. I was not satisfied that the risks involved in investing in managed funds had been properly explained to Mr M.
When Mr M had met with his branch manager in early 2002, at which time he had expressed concerns about the performance of his investment and had indicated a wish to withdraw from it, his bank manager should have referred him to an investment adviser for specialist investment advice and, if necessary, a reassessment of his investment attitudes and goals.
I found that a fair remedy in this case was for the bank to refund the difference between the value of Mr M’s investment on the date of his 60th birthday in April 2002 and the value of his investment upon withdrawal three months later, in July 2002. This amounted to a sum of approximately $10,300. In addition, I recommended that the bank pay interest at a rate of 6% per annum compounding on that sum from the date of withdrawal to the date of payment. This amounted to a further $3,000.
The complaint was settled in accordance with my recommendation.