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Watchdog warning on risk profile

The Financial Ombudsman Service is warning companies not to rely on investor experience in misselling complaints.

It says firms often cite the fact that the complainant has previously invested in similar products to claim they are experienced investors and should have been aware of the risks.

But FOS chief ombudsman Walter Merricks says companies are often guilty of prejudging and that having some former experience does not make a customer an expert. The FOS cites a case where an IFA claimed that a widow who inherited a portfolio of shares from her husband was experienced in holding equities and it says that such arguments will not succeed.

Investment experience is only one strand that the FOS looks at when investigating a complaint and it says circumstances recorded in the fact-find or client questionnaire, such as stated attitude to risk, can take precedence.

Merricks says: “Firms should not prejudge individuals as experienced investors just because they may have inv- ested in endowments before. These individuals may not be aware of the risk posed by their previous investment or their circumstances may have changed.”

But Fishburns Solicitors solicitor Clare Ward-Smith says: “The client’s investment experience does not usurp the function of the IFA but it is probably a factor that needs to be more heavily weighted by the FOS. The FOS seems to focus too heavily on the investor’s stated risk profile and often fails to look at experience.”


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