When is an investment fact find and risk questionnaire not fit for purpose?

You may will think that a detailed financial questionnaire used a by a major high street bank could not be fit for purpose. But, following a recent court hearing, (Impey V Lloyds TSB, Case no 3YL75604), this has been found to be the case.

The claim centred around whether the claimants were asked relevant questions and then whether the replies given were correctly interpreted using the FSA requirement of ‘Treating Customers Fairly’ (Principle 6 and COB 5.1) and to ‘take reasonable care to ensure the suitability of its advice’ (Principle 9 and COB 5.2, 5.3 and 5.4).

The judge also found that Lloyds TSB misled the claimants by defining the general definition of ‘short term’ to mean up to 5 years when in practice it is generally regarded as up to 3 years. This in itself would not have become an issue if Lloyds TSB had clearly set out in the questionnaire that ‘short term’ could mean up to 5 years. Instead it was hidden away on page 22 of an investment guide in small print, which was only given to the claimants after they had completed the questionnaire.

In reviewing the fact find and risk profile questionnaire the appointed expert for the claimants, Mr Grahame Goodyer of Investment Research EW Ltd, found that the questions asked, particularly regarding the risk profiling of clients, were misleading and ‘not fit for purpose’, which led the judge hearing the case, Her Hon. Judge Gordon-Saker, to state in her summing up that she agreed with him.

There was a further issue which highlighted the need for separate questionnaires for the 2 claimants, which there were. Both claimants were over the age of 60 at the time of the advice and Mrs Impey had suffered ill health over the previous 2 years but had improved in the recent past. However, her illness was such that Mr Impey had to sell his business to care for her. All of these issues were signs that the financial adviser should have noted (which she  did) and then apply a reasonable level of common sense to amend the risk profile by adjusting downwards the risk score to reflect their personal circumstances, to one lower than the scoring system calculated, which she did not. It was this aspect that effectively sealed the act of negligence.

The risk profile questionnaire was found in the judgement not to be ‘clear fair and not misleading’ as required by COB 2.1.3R. Mr Goodyer, in his review of the risk questionnaire, opined in his report that a number of the questions were misleading as they aimed to be appropriate for investors from 20 through to 75. Clearly this is very hard to achieve, and, for Mr and Mrs Impey, led them to being given unsuitable advice.

As the questions were inappropriate, this led to the claimants providing answers to the Lloyds TSB adviser that skewed the risk profile score and in turn led to a higher risk profile being allocated than was the case. The consequence being that an unsuitable product and investment funds were recommended which were not suitable or appropriate for the claimants.

The court found in favour of the claimants accepting, in full, Mr Goodyer’s report and the written and oral evidence of Mr Impey, and awarded the full damages plus interest.

If you have a client who may have been miss-sold a financial product by Lloyds TSB (or any bank or financial services company) and believe they were incorrectly risk assessed by an advisor, then please contact us to talk through your client’s case.

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