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Walter Merricks, chief ombudsman

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.

ombudsman news

issue 49

September/October 2005

when we can dismiss investment complaints without considering their merits

In certain circumstances we can dismiss a complaint without considering its merits. This is sometimes called early termination or dismissal. The Dispute Resolution Rules (DISP) set down by the Financial Services Authority (FSA) in its Handbook of rules and guidance give a total of 17 sets of circumstances where we may dismiss a complaint without considering its merits. The Handbook is available on the FSA’s website at www.FSA.gov.uk.

the circumstances listed below are those that tend to crop up most frequently in the investment cases we deal with.

the firm has already made a fair offer of compensation

We can decide that there would be no justification for our investigating the complaint if the firm has already offered the customer redress which – even if we upheld the complaint completely – we would not improve on.
the complaint has previously been considered or excluded by the Financial Ombudsman Service or by a former ombudsman scheme

We do not re-open and re-consider a case we have already dealt with unless there is new material evidence that:
- was not previously available; and
- is likely to affect the outcome.
If a complaint has already been considered by a scheme which is no longer in operation and it is brought to us with no material differences, then it is likely to be dismissed, regardless of the original outcome.
the complaint has been or is being dealt with by a comparable independent complaints scheme or dispute resolution process
We receive a number of complaints which have already been dealt with by another complaints scheme. This could be another ombudsman scheme or a comparable complaints scheme in Ireland, the Isle of Man or the Channel Islands. If the complaint dealt with by that scheme has no material difference to that brought to us, then we are likely to dismiss it.
a court has already considered, or will be considering, the issue or issues in the complaint

We do not allow a conflict, or potential conflict, to arise between our findings and those of a court.
the complaint is one that is more suitable for consideration by a court

Sometimes, a court may be much better placed than us to deal with a complaint, for example where the court’s more formal powers and procedures are needed.
the complaint is about a firm’s legitimate exercise of its commercial judgement

We do not interfere in the way in which a firm exercises its commercial judgement, as long as it does so legitimately.
the complaint is about investment performance
Investment complaints generally concern a customer being mis-sold a financial product or being given advice that was unsuitable for their needs. Firms sometimes try to claim that such complaints are really only about investment performance. However, as customers often only realise that something is wrong when they see the product performing badly – it should not be automatically assumed that the complaint is solely about performance. Where a complaint is solely about investment performance, we can dismiss it.

case studies

when we can dismiss investment cases without considering their merits

the following cases illustrate circumstances where we have had to decide whether we should dismiss an investment complaint.

dismissal where the complaint concerned the firm’s legitimate exercise of its commercial judgement

49/4
customer complains that firm has not applied bonuses correctly to with-profits bond

The firm advised Mr C to invest in a with-profits bond, consisting of a large range of equities and fixed-interest assets. At the time of the sale, the firm gave Mr C an illustration outlining what the bond could be worth in future, if certain rates of growth were achieved.

Some time later, concerned that his investment wasn’t doing as well as the firm’s illustration had led him to expect, Mr C decided to perform his own calculations. When he found that the value of his bond did not reflect the stock market’s increase, he concluded that the firm had not been applying bonuses correctly.

After the firm rejected Mr C’s complaint about this, he came to us.

complaint dismissed
Mr C stressed that he was not complaining about the firm’s advice, only about the way in which it had calculated bonuses.

We noted that his calculations had not included certain charges that applied to the bond. In particular, he had not accounted for the smoothing that the firm had applied. (Smoothing is a practice whereby with-profits companies sometimes hold back some of the profits in a good year and use them to top-up bonuses in poor years.) This is a perfectly acceptable practice and constitutes a legitimate exercise of the firm’s commercial judgement.

We therefore dismissed Mr C’s complaint without considering its merits.

dismissal where the complaint has been dealt with by a comparable independent complaints scheme or dispute resolution process

49/5
customer brings complaint to us that had already been resolved by another scheme

Mrs B complained to us about an investment bond that the firm had advised her to take out. She claimed that the bond was inappropriate for her needs and that the firm had given her poor advice.
The representative who originally advised her operated from Ireland, although the firm itself was based in the UK.

complaint dismissed
During our initial enquiries we discovered that Mrs B had already complained about the investment to a complaints-handling scheme in Ireland. We contacted that scheme and found that the complaint she brought to us was exactly the same as the one that the Irish scheme had already resolved.

We therefore dismissed the complaint without considering its merits.

dismissal where the complaint was more suitable for consideration by a court

49/6
customer brings complaint to us about advice provided by his business partner

Mr A complained to us about some investment advice he said he had been given. This advice involved his taking out several loans to pay approximately £400,000 into a series of " second hand" endowment policies. Mr A said that as this was a high-risk investment, it had been entirely unsuitable for his needs.

complaint dismissed
It quickly came to light that Mr A and the adviser he was complaining about had known each other, both socially and on a business basis, for quite some time before the advice was given. Mr A had entered his business into a joint arrangement with the adviser’s business so that they could trade in "second hand" endowment policies. Because of this arrangement, Mr A was effectively a partner in his adviser’s business.

We concluded that it would be better for a court to determine the case. The informal nature of our process meant that it would be very difficult for us to get to the bottom of the complicated relationship between the adviser and the complainant. The court would also be better equipped to investigate any prior knowledge Mr A may have had of the "advice".

Although not a reason for dismissing the complaint in itself, it was also apparent that the redress being sought was in excess of £350,000. This is over three times the maximum enforceable award we could make. We dismissed the complaint without considering its merits.

dismissal where the complaint concerns investment performance

49/7
customer complains to firm about inappropriate advice

Mr T came to us with a complaint about investment advice that he believed had been inappropriate for him. He said that he had lost a significant amount of money and that the firm had not warned him that this might happen. Indeed, he said he had been told that the value of his investment would not fall below the amount he had invested.

When Mr T complained to the firm, it dismissed his complaint. It also told him that because the complaint was about how his investment had performed – not about why it was sold to him – it was not a matter we would deal with. Despite this, Mr T decided to contact us.

complaint not dismissed
It is for us – not firms – to decide whether or not a case is suitable for dismissal. Mr T was not complaining about investment performance but about inappropriate advice. It was only when the investment failed to perform as the firm had led him to expect that he realised he had been mis-led. We did not dismiss the complaint, but proceeded to investigate it.