A client who claimed advice from Zurich “exposed her money to too much risk” has won her case.

The Financial Ombudsman Service has ruled in favour of Mrs D, who was advised to make a lump sum investment in an equity ISA and an investment bond and then to start a regular savings plan soon after.

Her representative said that the advice “was wasn’t suitable for her circumstances as it exposed her money to too much risk, the recommendations weren’t properly explained and the adviser didn’t take all her circumstances into account”.

Zurich said that the client’s attitude to risk was recorded three times as ‘balanced’ which indicated she was willing to take a risk – and those risks were explained to her.”

But David Bird, the ombudsman, said: “I generally agree with the adjudicator that the complaint should be upheld. I believe it is more likely that Mrs D’s version of events is the more likely and she didn’t wish to take this much risk with her savings.”

According to the FOS papers, in November 2000 Mrs D was advised to invest £4,000 in an ISA and a further £4,000 in an investment bond. Later that same month the adviser recommended she start a 10 year regular savings plan setting aside £75 each month.

The FOS adjudicator concluded the advice wasn’t right for Mrs D’s circumstances in 2000.

More than half her available savings were put into risk based products but “there was no evidence from the time of the sale Mrs D was willing to take the level of risk the investments presented”, the FOS stated.

The adjudicator was also concerned the adviser “didn’t discuss with Mrs D any options with regard to her interest only mortgage which was supported by a mortgage endowment policy”.

He disagreed with the adviser’s recommendation that she committed to an inflexible 10 year savings plan when the adviser said it was just a “step towards” meeting what she needed.

Zurich argued against the adjudicator’s conclusions, saying:

• Mrs D had made mortgage repayment arrangements and the adviser recorded she didn’t have a need for mortgage repayment advice;
• Both the bond and the regular savings plan provided returns which were consistent with the projections the adviser gave Mrs D with his recommendations;
• The adviser’s reference to a “step towards” could mean she could increase her future contributions if she wanted to;
• Her attitude to risk was recorded three times as ‘balanced’ which indicates she was willing to take a risk – and those risks were explained to her;
• It did accept the ‘waiver of contribution’ option was inappropriate and offered to refund the payments made to it together with interest.

Mr Bird said it was a case of “unsuitable advice”.

He said: “Mrs D was not working at the time and it seems the household income was supplied, in the main, by Mrs D’s partner. This was adequate for their needs but by no means a significant income.

“I think it would have been difficult, or taken them a long time, to replace any significant loss cause by these investments. All the investments had the ability to do that. It seems they were all invested in ‘managed’ type funds – usually containing equities and fixed interest assets. That brings with it the chance of significant loss.

“Mrs D invested about 50% of their joint savings and it seems that they had not done this before – in fact they did not have any risk based savings (they may have had an endowment to repay their mortgage).

“Whilst there will always be a first time for this kind of investing and it may well be that Mrs D was prepared to take some risk, I think it unlikely she would have wished to place so much of their money and security at the level of risk presented by these investments.

“I don’t believe the recommendation letters make it clear what in practice ‘balanced’ investing meant in terms of the losses that could be incurred.

“On balance I believe the complaint should be upheld. I think that Mrs D was probably prepared to take some risk – but at a lower level – given her circumstances.”

Zurich has been told to compensate Mrs D through a calculation set out by the FOS.