CR100 Investment – losses incurred from investment for elderly client

See too: CR, Investment Policies,

CR100

Investment – losses incurred from investment for elderly client – investment considered inappropriate – misselling – reinstatement recommended

Background

In 1990, following the death of her husband, the 66 year old complainant invested an amount of R400 000 with an insurance company. Her stated intentions were to obtain a monthly income and on her death to have sufficient funds available as an inheritance for her children. At the end of the 10 year period the investment was worth R319 661. In January 2001, when the policies, in which the original amount had been invested, matured, the monies were to be reinvested. Acting on the advice of a financial adviser, who was not independent of the insurance company, the proceeds were transferred from a guaranteed capital fund to another investment, which was in an equity related portfolio. At this time the complainant was 76 years old. In May 2001 the financial adviser responsible for the advice to the complainant resigned his position. In July 2003 the complainant approached us with a view to seeking redress against the insurance company as she had incurred further capital loss.

Discussion

We were of the opinion that the investment vehicle chosen by the complainant, on the advice of the financial adviser, was inappropriate in the circumstances. We requested the insurance company to provide us with an objective opinion as to the appropriateness of the investment compared to leaving the funds in a fund guaranteeing the capital. The insurance company calculated that should they reinstate the investment on the basis that it should have remained in the guaranteed capital fund, an amount of R91 402 would have to be refunded to the complainant.

Result

The insurer agreed that the investment advice to transfer the funds from a fund that guarantees capital to an equity related investment was not appropriate in the circumstances. The insurer consequently offered to cancel the equity related investment and reinstate the policy in a fund that guarantees capital. This resulted in the complainant receiving the extra amount of R91 402 which the client accepted.

AS
October 2005

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