The Financial Ombudsman Service (FOS) has ruled against a bank for advising a client to invest £3.2m in a bond issued by failed US insurer AIG.
A provisional decision published by the organisation, designed to show its general approach to this kind of case, explains why the complaint by Mr and Mrs V against Bank D was upheld.
The clients were advised to invest in the AIG Life Premier Access Bond (PAB) Enhanced Variable Rate fund in early 2008, although, in the wake of the collapse of Lehman Brothers, it was suspended and, shortly afterwards, closed.
The clients had withdrawn about £430,000 before the fund's suspension and, after opting to surrender their remaining investment, worth around £2.8m, received back around £1,375,000 following the initial switch and a further £1,040,000 through the exit plan.
The Ombudsman said Mr and Mrs V were inexperienced investors who did not wish to put their capital at risk and were simply exploring the possibility of finding a better interest rate than that generally offered on deposit accounts.
He added the PAB Enhanced fund was not suitable for the couple and said the information they had been given did not alert them to the risks they had been advised to take.
Explaining his decision, he said Bank D should have been able to identify that the Enhanced fund was not a standard money market fund and that it presented some risk to capital.
The Ombudsman decided the bank should pay £100,000 plus 2.5% interest from the date Mr and Mrs V cashed in the second half of their investment until the date of payment.
It further recommended the bank pays them the outstanding balance plus interest using a mechanism taking into account the achievable rates at the time.
Read the full decision HERE
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