£75,000 fair compensation ruling for hard sell and high risk portfolio for £540,000 investor? Lloyds Bank thinks not!

Many FX brokerages, regardless of size or standing, are so incredibly diligent when it comes to ensuring that they complete their KYC (know your client) obligations when handling an investment from a retail customer, as well as expending immense resources on ensuring that best execution practices are adhered to, with immediate and swathing criticism all over the regulatory websites and press if even the most minor error occurs, so observant is the scrutiny on our industry’s practices these days.

Does the same apply to large banks? If a recent case involving Lloyds Banking Group PLC (LON:LLOY) and a retired businessman who had £540,000 to invest is anything to go by, apparently not.

Lloyds Bank attempts to overturn £75,000 compensation ruling for recommending risky investments

There was a very well known advertising campaign in the mid 1980s on British television for now non-existent Midland Bank, which marked itself out as “The listening bank” – today, however, it appears that many banks will not listen to their customers, and some even have difficulty hearing rulings against them in litigation cases.

Retired businessman Phillip Impey, from Cambridge, England, sold his taxi business six years ago at age 69 and retired. A customer of Lloyds Bank for 40 years, Mr. Impey sold his home and downsized as part of his retirement, leaving him with £540,000 in cash which he deposited into his bank account at Lloyds Bank in Haverhill, Suffolk.

Mr. Impey and his late wife were then the immediate target of sales staff at the branch who insisted that he spoke to a financial adviser, which he eventually agreed to with the premise that he strictly required a low risk investment.

At this point, the bank carried out meetings with Mr. Impey, after which it was decided that he was a ‘balanced investor’, an ambiguous term indeed. The investments depleted in value at such a rate that approximately £35,000 had

had been lost before Mr. Impey decided to cut his losses and move the money to a savings account at the bank. The losses had begun in March 2008, but the investments continued to lose money until November that year. Mr. Impey had expressed his discontent but was met with retention tactics from his financial adviser.

Dear Lloyds Bank, Will you pay the compensation ruled by the court? Answer: No.

With assistance from law firm Neglect Assist, Mr. Impey issued a formal complaint to the bank, asserting that the products had been mis-sold to him.

The case was brought to Cambridge County Court, where Mr. Impey had to do battle with a lawyer representing the bank. The case lasted for one and a half days, with the bank’s defense being that it denied mis-selling and argued that Mr. Impey should have made a complaint at an earlier stage.

The bank’s lawyers asserted that Mr. Impey had been a businessman, therefore should have known and understood what he was taking on.

The court ruled in Mr. Impey’s favor, as his lawyer presented that the funds offered to Mr. Impey, which had 40% of its investment in shares and 15% in property, was too risky given Mr. Impey and his now late wife’s age and circumstances at the time of sale.

The judge ruled

“The claimants were not experienced investors and the advisor did not provide them with all the information on which they could make an informed decision. They were wrongly assessed as balanced investors and the investments were not properly explained to them.”

The court ordered Lloyds Bank to pay a total of £74,748 in compensation, which consists of £15,540 for Mr. Impey, £30,098 for his wife, plus interest of £24,547 and £4,563 respectively, based on a calculation of what Mr. Impey would have earned if he had invested in lower risk products.

Rather than settling following the ruling, Lloyds Bank decided to appeal the case, arguing that according to the law, retail customers have six years to make a complaint if they realize that their investment was not what they had required. The bank continued with this method, despite having its appeal rejected in August this year, in order that the bank could seek to have the ruling and appeal overturned in its favor.

It took a call to a national newspaper to expose this and cause the bank to back down.

A spokesman for Lloyds Bank told the Daily Mail

“As a bank, we are committed to doing the right thing for our customers. We have looked again at the individual circumstances of this case and have decided to withdraw our application to appeal the decision.”