The UK has suffered over the years with a number of scandals involving the mis-selling of financial products. They sadly involve various products, but high up on the list is the issue of mis-sold shares.
Whilst the mis-selling of shares is a problem that has been happening for a long time, it is only quite recently that victims of this fraudulent act are finally seeking compensation after being defrauded for so long.
If your investments have been experiencing unexplained losses, or your stockbroker failed to properly ensure that due diligence was carried out when you purchased the shares, there is a possibility that you might be a victim of mis-sold shares.
In this article, we will expose this financial misconduct and show you how to seek compensation.
Normally, when you indicate an interest in buying shares, your stockbroker or financial advisor is mandated by the UK’s financial regulations to give you unbiased advice concerning the intended investment.
However, some deceitful advisors found ways to get round this regulatory duty, for their own personal interests. Unknown to many of their customers, the majority of stockbrokers and financial advisors get huge commissions for each type of shares they convince their clients to buy.
It is this hidden incentive that creates a conflict of interest for the advisor. So, rather than advising their clients to buy the investments most suitable for their individual circumstances, a some unscrupulous stockbrokers only peddled the products or shares that generated the higher financial benefits for themselves.
Thus, burdening their clients with wholly unsuitable investments that could be a significant drain on their finances.
Mis-sold shares happen for a number of reasons and some are given as follows:
- Company traded as principal, but neglected to disclose it (which could lead to insider-trading)
- Shares were not suitable for the client
- Advisor did not adequately assess the client’s financial situation
- Brokers deliberately gave the client misleading or false information
- Risks were not properly explained to clients
If you are unsure whether you are eligible to make a claim for compensation, take a look through the list below. It explains the most common ways people are mis-sold a financial product and should help you identify if this has happened to you:
- You were pressured to invest in shares you did not fully understand
- You experienced hard-sales tactics to invest in shares you did not want or need
- You were not asked about your attitude to risk and were therefore sold unsuitable shares
- You were lured with promises of high returns that failed to materialize
- You were given false or misleading info about your investment options
- You had inadequate information about the stocks, because your financial advisor or stockbroker failed to explain the potential downsides and risks of your investments
- You experienced massive losses in your investment portfolio because all or most of your money was invested in just one type of sector, e.g. agriculture
- You were unaware of the extra fees, costs or commission included in your investment, because your advisor declined to disclose them to you
- Your stockbroker added shares to your account without your knowledge or consent
- Your stockbroker excessively traded your account to reap quick profits from the market
If one or more of the above situations apply to you, then you may be entitled to seek redress and claim compensation.
What Should I Do To Get Compensation?
Once you discover or believe you have been a victim of mis-sold shares, you should take the following steps:
1 Write It Down
The first thing you should do is to write down everything that led to the mis-selling. Explain in clear terms all the information that you were given by your stockbroker.
Was there anything you did not understand or that your financial advisor neglected to explain? Did your stockbroker sufficiently outline the risks involved with the shares? Looking back, do you believe that the product was suitable for you?
Your answers to these questions will give you an idea of what your complaint is based on. Be as detailed and as thorough as you can. Keep copies of the narrative in a safe place because you will need it to help with your case.
2 Lodge A Formal Complaint With The Company/Stockbroker/Advisor
Next, it is time to officially make your grievance known to the firm responsible for the mis-sold shares. Do this in writing, so that you have a copy of the correspondence.
Be clear and direct in your letter. Outline the reason you are contacting them and why you think you were mis-sold. Let them know that you are unhappy and would like to see the issue settled as soon as possible.
Also, tell them the terms you will agree to for the issue to be resolved. In addition, attach copies of signed forms, bank statements, receipts, and other similar documents relating to the shares to your written complaint, if you have them.
However, if you don’t have any of that paperwork to hand, don’t panic, you should still proceed with your complaint.
Make sure the company knows that you have every intention of contacting the financial ombudsman if there is not a satisfactory resolution to the matter.
Your stockbroker has eight weeks to acknowledge and respond to your complaint. If they fail to do this or you don’t like the solution given to you, contact the ombudsman after the expiration of this time limit.
Hopefully, during that time period, your stockbroker should have responded to your complaint starting off a chain of correspondence that could lead to a solution.
It is recommended that you save every piece of correspondence regarding your complaint just in case both of you cannot agree on a common ground. If they call you about it, make notes of the call, the date, what was discussed and the name of the person you spoke to.
3 Get In Touch With The Ombudsman
If you do not receive a reply to your letter or are unable to reach a satisfactory conclusion after 8-weeks, then you can proceed to this step.
Once contacted, the Financial Ombudsman Service (FOS) will appoint a mediator to look at complaints by both you and the firm. They will weigh up all the details and any evidence provided by both sides. There is a chance they might ask you to provide more information, if necessary, to help them come to a decision.
At the end of their investigation, the ombudsman will write a letter to you and the firm confirming their decision. If the FOS agrees with your complaint, the letter will outline what the company must do to compensate you for the mis-selling.
On the other hand, they may disagree with your case and decide the broker did nothing wrong.
4 Take The Legal Route
Going down the legal route and referring the matter to the courts is the last resort in cases like this. Nevertheless, if you are still dissatisfied with the ombudsman’s decision, you have the option of heading to the courts.
But, before you head down this course of action on your own, be aware that lawsuits can be expensive and often take some time to reach a conclusion. In such instances you many want to seek legal advice from a claims adviser or a solicitor familiar with such cases, so they can review your case and advise if you have a realistic chance of winning.
Can I Still Claim Compensation If The Firm Is No Longer In Business?
Discovering that the firm has long ceased trading should not deter you from seeking compensation.
All you have to do is forward your complaint to the Financial Services Compensation Scheme (FSCS) instead. The law empowers the FSCS to stand in place of a firm that is no longer operating. Providing the firm was authorised by the Financial Conduct Authority (FCA), you are eligible to make a claim for compensation.
However, for your claim to be successful, you have to prove to the FSCS that there is a civil liability against the company. You also need to show the FSCS where this liability exists.
As with any type of financial mis-selling claim, you can file a mis-sold share complaint yourself, by following the steps we have outlined. The FSCS service is free and fairly straightforward.
However, if you prefer for someone else to handle the mis-selling complaint on your behalf, you can instruct a claims management company (CMC) to help you instead. A claims adviser can review your case and discuss how you may want to proceed.
It is important to note though, if you do decide to go through a CMC and they are working on your claim, don’t duplicate the activity and file another complaint yourself, because the FSCS scheme will only handle one claim.
What Amount Of Compensation Should I Expect From The FSCS?
The amount of compensation paid out for this type of financial mis-selling case is determined by the individual details of client and the way in which the share portfolio was affected.
All cases are different, and the financial impact varies from one person to the next, so we cannot advise how much compensation you could get.
However, there are maximum compensation pay-outs that limit what the FSCS can award:
- If the company ceased operations on or after April 1st 2019, the maximum FSCS compensation award is £85,000 per person.
- For firms that failed between January 1st 2010 to March 31st 2019, compensation will be capped at £50,000 per individual.
- For companies that ceased earlier than this date, the maximum compensation pay-out is £48,000.
If you have unexpectedly lost money on your investments and are considering making significant changes to your shareholding because of this, we suggest you seek independent financial advice before making any drastic decisions on your portfolio.
We also understand that it might be difficult to determine if your stockbroker mis-sold those shares to you and failed in their regulatory duty, or if it is simply a case of ‘bad luck’.
By using the information in this guide and getting expert help from a claims advisor, you can discover if you have a valid mis-selling complaint to pursue a compensation claim or not. If you wish, you can get free advice to help start your claim by contacting a claims advisor here.