Midweek Money: Big brother is on your side

Feel let down by your adviser? Don't despair - the Investment Ombudsman has the power to help.
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The Independent Culture
IF YOU have a PEP, or your investments are managed by an adviser, have you ever experienced poor administration or had your instructions ignored? If you get nowhere with the company, it is likely that you need to complain to the Investment Ombudsman, for he is responsible for firms regulated by the Investment Management Organisation Limited (Imro).

Established in 1988, it has just seven staff, all of whom, with the exception of two secretaries, are lawyers. The ombudsman is Peter Dean CBE, a solicitor.

The scheme was established by Imro as an independent system to consider complaints against Imro-regulated firms by customers who feel aggrieved and entitled to redress. Last year, exactly 50 per cent of recommendations were in favour of complainants and the scheme cost pounds 358,165 to administer.

Imro was established to regulate firms responsible for investment management or some related service. Therefore the complaints received normally relate to the management of a portfolio or the provision of unit trusts or PEPs. However, because of the legal structure of unit trusts, the ombudsman may require the trustee to take up the matter on your behalf.

There are four conditions that have to be met before the ombudsman can look at a complaint:

l The firm regulated by Imro must be given reasonable opportunity after having first received the complaint - say, two months - to sort out the matter to your satisfaction. When stalemate is reached, firms are obliged to inform complainants of the scheme;

l The matter must be referred to the ombudsman within three years after you knew - or should have known - of the problem.

However, there is discretion to extend this time;

l In cases where financial loss is alleged, this must normally not involve a sum exceeding pounds 100,000. However, with the consent of all parties, cases may be investigated where larger sums are involved;

l Your complaint must relate to something which happened after 29 April 1988.

The highest level of complaints received relate to poor administration. This is followed by failure to carry out instructions and the content of customer agreements. A number of complaints relate either to inadequate explanations of what has been sold or to the performance of the investment.

The office's "Informal Guide to the Investment Ombudsman System" reminds potential complainants that the value of investments does fluctuate and may fall below the amount invested. Poor performance by itself is not a valid complaint. However, in his latest report, the ombudsman admits that this is hard for unsophisticated investors to accept.

Mr Dean says: "Some complainants, knowing that a claim based on poor performance is unlikely to succeed, exercise ingenuity in dressing their case up in terms of erroneous administration, inadequate reporting, misrepresentations etc. Such disguises are transparent and to no avail."

He observes that, despite all the caveats in promotional material, these are "eclipsed in the investor's mind by expectations of growth, based on vividly presented statistics of past performance". Realistically, he considers that part of the answer is better consumer education.

The ombudsman receives a high proportion of complaints about PEPs. Ironically PEP managers with good investment records have been victims of their own success. New business has stretched their administrative systems, meaning an increasing number of complaints. Last year it was noted that, when those aggrieved finally lost patience and involved the ombudsman, he found that in most cases the complaints arrived at his office at the same time as the investor received an acceptable offer of compensation.

However, there is one problem that he cannot solve. When a PEP manager has merged two or more years' investments into one account, the investor cannot, under Inland Revenue rules, transfer part of the account to a new manager - it is all or nothing.

Mr Dean says: "Disappointingly, this problem has still not been sorted out, and the restriction continues to cause investors annoyance."

At the year beginning 1 April 1997, the office had 158 outstanding cases. During the year 299 new complaints were received and 375 cases were closed. All cases were finalised by the ombudsman recommending a settlement which he considered fair and reasonable. No case proceeded to adjudication, which is a more formal, legally binding arbitration.

On average the ombudsman takes 576 months to finalise a complaint. The highest award for the year ending 31 March 1998 was pounds 15,000, while most were for pounds 500 or less. The total amount awarded during the year was pounds 166,465.

The Investment Ombudsman is at 6 Frederick's Place, London EC2R 8BT (0171-796 3965)

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