Question: I consulted an independent financial adviser when I sold my business on the birth of my first child. I had £60,000 to invest.
He set up a portfolio for me invested in various shares, but within a year its value had collapsed to £30,000.
After a year, I cashed in my shares and consulted another adviser. With his guidance, I have now invested the £30,000 in low-risk shares with a steady return.
As a single mother I had relied on the £60,000 to bolster my income when I sold my business. Do I have any redress?
Ms B
Answer: Whether you can claim some form of compensation from the first adviser really depends on the quality of advice he gave you, rather than simply the fact that the shares you ended up buying performed badly.
When we put money into the stock market, we recognise that there is risk attached – the potential returns are higher than if we put our cash into a deposit account, but so are the potential losses.
And stock-market investments are not for the short-term: if you put money into shares, or into funds which hold shares, you need to be able to leave your investment alone for at least five years.
By selling up when you did, you turned losses on paper into actual losses: after all, your portfolio could have recovered following its disastrous year.
However, what really matters is the advice you were given, and whether it was suitable for your circumstances.
Advisers are obliged to find out their clients’ attitude to risk when recommending investments, so you should have been asked questions about what you wanted from your portfolio, for example a regular income, or whether you would mind seeing its value drop before, hopefully, recovering later on.
If you expressed a preference for low risks and low returns, and your adviser ignored this and told you to put money into a series of small, risky technology companies, say, you could have a case for mis-selling and therefore compensation.
But if your adviser spelled out the risks, and you decided to go ahead regardless, you would be unlikely to succeed with a claim.
It could be that you simply put your money into the markets at a particularly bad time – although those losses do seem particularly high even given recent turmoil.
Check the paperwork from your adviser: if you feel it does not justify the portfolio you ended up with, first make a complaint to your adviser, and then the Financial Ombudsman if necessary.
Question: I have recently been made redundant and also get my pension which gives me a £65,000 lump sum to put in to our savings.
Our son has a mortgage of £62,000 left to pay over the next 19 years.
Would you suggest paying up his mortgage and receive a monthly payment back as a extra income for us to live on as an extra to my monthly pension?
We also have other savings but they are giving very little interest, so our son would benefit and we would get an income for next 19 years.
Mrs N
Answer: At the moment, it’s likely that your son is paying more in mortgage interest than you could get on a savings account. If you paid off his loan, and he gave the equivalent of his monthly payments to you instead, your plan would – for the time being – result in an overall financial gain for your family.
But you need to think about how sustainable this situation is. For example, what would happen if your son lost his job and could no longer make his payments to you? Do you have sufficient other income to survive?
Also, think about what would happen when interest rates rise: is your son going increase his payments to you in line with what you could have earned from a savings account, or in line with rising mortgage rates?
After all, if inflation increases as well, you will need more income to cope.
And what if you needed a lump sum of cash to pay for an emergency such as medical treatment – or a trip of a lifetime?
It would be worth thinking about these issues before deciding whether to go ahead with your plan.
If you have personal finance questions you need answered, then send them to our cash clinic expert, Chris Torney, who is also the personal finance editor of the Daily Express. In conjunction with the Confused.com team of insurance and personal finance experts, Chris will do his best to bring you the answers you need. Send questions to cashclinic@confused.com.
We regret that we cannot answer every question put to us due to high volumes, but we will certainly do our best and will publish our responses here weekly.
The content of this blog is based on personal opinion only and does not constitute financial advice.
