Financial advisor has so far only incurred losses

[kenwood]

I recently engaged a financial advisor to consolidate my pensions and a cash isa, together worth perhaps £120k. This was invested in January 2022 and has only dropped in value so far. I have written to them several times but they say things like you need to hold your nerve, it will get better when the situation in Ukraine is resolved etc etc. I understand all the rationale in that the pension funds would have fallen with my previous pension provider however, to place cash into a falling market is quite reckless. From the first moment it has only fallen and I've lost approximately £15k since January 2022. I am 64 years of age so don't have a lot of time for this to pick up again and I'm not working, nor am I likely to be offered a job due to my age.

How long should I give it  before taking action and what precise action can I take? Is there any way of recouping my losses from him? I understand I could take this to the Financial Ombudsman but what would they do?

[honeybee13]

Some funds have dropped in value due to Ukraine and other factors and as you say, advice is normally to hold your nerve rather than crystallise a loss because markets usually correct.

 

When you took out this pension, did you have a discussion with the advisor about when you thought you would need to start accessing the money? And did the advisor explain the investment strategy to you?

 

HB

[kenwood]

Thanks for your response. I told him I didn't need the money yet and hoped it would increase gradually for when I do need it, say in 10 years. He said in theory I could start drawing down around £10k per annum from the profits in the future. He was recommended to me via a friend who has been with him for around 20 years and said on average his profits, after all costs and taxes have been around 7% per annum. 

 

But since I'm £15k behind right from the start it seems pretty awful to me. How soon can I expect any upturn and if it just flatlines for say the next 2 or 3 years where do I stand?

Edited May 6 by kenwood
typo

[honeybee13]

I see. The trouble is that you went in at a time when no one could predict the Ukraine situation, so a drop was possibly inevitable. With a 10-year run, any decent fund should show a good return like your friend's.

 

And depending on which funds the adviser recommended, he might have selected one or more that could be accessed early. That's why I asked if you had the investment strategy explained to you. You should have had a full written report explaining why it was the right investment for you.

 

But you're saying you don't have much time, are you saying you now think you might need money in less than 10 years?

 

HB

 

 

[kenwood]

What I meant about timing is how long should I wait before starting a complaint procedure if things dont improve?

 

I do not need the money just yet. The funds are on a known platform and I have full access. In theory I could sell up right now without his "permission". Something they said is that all the funds have stated they are on target for their 5 year projections. I did complete a questionnaire regarding my attitute to risk and it came out higher than anticipated and at any rate he has treated me as medium risk tolerance rather than low. I'm considering dropping him to save the 1% annual fee, it just feels like good money after bad. If the funds are on track what would I need him for? Would this be unwise? I really feel it was quite sloppy to put cash into a falling market, he admitted he had known markets were dropping globally since November, he didn't tell me this before transferring my money and I kept asking him for log in details to the platform but he did not even acknowledge this request. It was only when I contacted the platform and they helped me log on that I saw the drop started from the very first moment in January, before Ukraine.

Edited May 6 by kenwood

[honeybee13]

If the adviser has put you into appropriate funds for your risk profile and timeline, I'm not sure you can hold him liable. If you were given bad advice, then that's different. It's almost impossible to choose a time to invest because you can't predict. It's very easy in hindsight.

 

This annual fee, is it all for the adviser or is some of it for the investment house? Unless the adviser charged you a fee, he would be entitled to some commission - did he receive any up front?

 

HB

 

 

[kenwood]

He isn't missing a trick. He has charged the fee upfront and is selling shares on a daily basis to ensure he is gets his 1% fee on an ongoing basis. I can't believe I have to endure these losses when clearly my money has been mismanaged. I dont agree with you - he could easily have told me to wait a couple of months till the markets settle but didnt.

 

I dont even know if my funds are low, medium or high risk. 

Edited May 6 by kenwood

[honeybee13]

I dont even know if my funds are low, medium or high risk. 

That doesn't say a lot for the investment report / reason why letter you should have had before you signed up.

I have asked before, did you have one and also what did it say about the charges upfront and per annum?

HB

[kenwood]

I do have a long "contract". The fees are 3% upfront and 1% per annum. He offered an annual fee of 0.5% for doing nothing, and 1% for supposedly being on call and visiting me once per annum to discuss the investment. However, I dont even trust his judgement anymore. I will read through it again at the weekend and see precisely how he has assessed my situation.

Edited May 6 by kenwood

[kenwood]

Hi, I do have the contract letter. It is worded in a very sly way, he's very keen to charge for services but at the same time has worded everything to absolve responsibility. It is geared towards 10 years. I dont know what you want me to find in it as it is quite standard, writing everything we discussed on paper. He even vaguely alludes to not picking the funds himself, but picking them via Defaqto Engage. He has written a couple of paragraphs about ethical funds as if I had brought the topic up in the first place but I didn't so I suppose it is just a boilerplate contract.  What is it that I am supposed to be looking for?

[honeybee13]

What is it that I am supposed to be looking for?

 

Well this is your complaint, not mine but I'd say you need to see if the IFA carried out his work the way he is supposed to as laid down by the FCA and tailored the recommendations to your requirements. Did he ask what your aims and objectives were and did he explain in writing why his recommendations were suitable for you? And were these reflected in the report he did? It sounds as if you think he didn't understand your objectives but did you tell him that once you had read the report?

 

I'm not sure what you mean about the contract wording but I thought an IFA was meant to declare what the commission would be on your investment and what the charges were by the investment house.

 

HB

[kenwood]

I think we are talking about two different issues. I'm telling you I've made an immediate loss and you're telling me to look at the contract. Whatever he states on paper is meaningless if I have started out on an immediate loss, it's looking like there will be more loss to follow if the rumblings about a recession are correct.

[honeybee13]

I understand that but I'm trying to find what grounds for complant you can use because I'm not sure if a drop in fund value in itself is grounds for the FOS. I read something yesterday from the FOS [can't find it at the moment, sadly] that said if someone is complaining about fund performance it can be a sign that they were given poor advice at outset so I think looking the process the IFA followed could show up something.

 

The process should be something like an initial meeting with you to understand what your investment objectives are, how long you want to invest for and what level of risk you're prepared to accept. Then there should be a written report that will include the IFA's understanding of all that, with their investment recommendations and the reasons for them. After that, there would be a second meeting with you to answer questions or for you to raise any errors they've made in their understanding of what you want.

 

How much of the initial loss is upfront charges made by the investment house which could include commission paid to the IFA?

 

I've never been to the FOS but I imagine they would look at the appropriateness of the investment itself - is it a SIPP? - and whether the investment funds you're in are right for your timeline and risk profile.

 

Was there an explanation that fund values can go down as well as up and why the funds were appropriate for your acceptance of risk?

 

If you want to complain, you will need to follow the complaints procedure of the firm the IFA is with. After two months, if you aren't happy with how they're trying to resolve your problem, you can involve the FOS.

 

HB

 

For info this is how Defaqto Engage works.

Defaqto Engage | Client Reviews

WWW.DEFAQTO.COM

 

 

[Ethel Street]

Is the loss between January and now before or after fees have been deducted? You mentioned some fees upfront, which is what often happens, so you'd expect some reduction in faund value at the start because of that.

 

If they were investing in a fund for a long term 5 - 7 year period and it was only invested in January then you only have about 3 to 4 months investment returns to look at, which isn't very much, especially against the background of the Ukraine war and the impact that has had on the economy. I'd agree with honeybee that the advice is normally to hold your nerve rather than crystallise a loss because markets usually correct (but I am not an investment adviser and that is not financial advice).

[kenwood]

Thank you for your comments. I may be naive but the way I see it is this: Lets say there is a car that can take 100 gallons of petrol and the owner wants to do a special journey and has just one opportunity to fill up. Lets say the person who filled the car was sloppy therefore 15% of the petrol was lost. This means the person will not be able to make the full journey he intended to. That's the way I see it but I know plenty think in a different way. If I'm 15% down at the outset then surely this has already reduced the future potential by 15%? 

[kenwood]

47 minutes ago, Ethel Street said:

Is the loss between January and now before or after fees have been deducted? You mentioned some fees upfront, which is what often happens, so you'd expect some reduction in faund value at the start because of that.

 

If they were investing in a fund for a long term 5 - 7 year period and it was only invested in January then you only have about 3 to 4 months investment returns to look at, which isn't very much, especially against the background of the Ukraine war and the impact that has had on the economy. I'd agree with honeybee that the advice is normally to hold your nerve rather than crystallise a loss because markets usually correct (but I am not an investment adviser and that is not financial advice).

Yes, fees have been deducted but if you see a graph of the investments it has just gone down from the first moment, which brings me back to my initial question of how responsible is it to place cash in a falling market, and the guy admitted knowing/noticing global markets had been falling since November.

[honeybee13]

I'm not sure I understand what date in January your fund was invested. Was it after 21st January when I understand there was a market correction please?

 

If it's possible, it might be helpful for us to see the graph you're talking about.

 

HB

[kenwood]

HB, the graph shows the money reaching the platform on 7 January and downhill all the way since then. 

Isa graph.pdf