The power to settle financial complaints.
The power to settle financial complaints.
A consumer who wants to buy or sell shares will need to use the services of a stockbroking firm. Stocks can also be bought and sold through a stockbroker. The consumer is the client of the broker, and cannot deal directly with the stock market. A broker will charge fees and/or commission for its services.
Some brokers make arrangements with consumers to manage their portfolio of stocks and shares.
The complaints we see relating to stocks and shares generally involve:
The activities of the stock market itself are subject to the rules and regulations of the Stock Exchange. Complaints about stock market activities – for example, prices quoted by the market – should be referred to either the relevant stock exchange or the Financial Services Authority (FSA) as appropriate.
A company registrar maintains the shareholder list for their company. As this is not a "regulated" activity, we cannot deal with complaints against registrars relating to this particular activity. But some registrars also offer share dealing services, which is a regulated activity.
While other parties are involved in the purchase of the shares, for example, market makers, they do not have a customer relationship with the consumer and so complaints cannot be brought to us about these other firms, even though they are regulated.
Consumers bringing complaints to the ombudsman service have sometimes been classified by their broker as "professional clients". (Note that before November 2007 a different system of client classification was in place. The equivalent term in the old rules is “intermediate customer”.)
This classification is intended for consumers who are experienced in stocks and shares transactions. The signed agreement states that a "professional client" cannot bring a complaint to the Financial Ombudsman Service.
When an individual classified as a "professional client" brings their complaint to us – and the broker then states that we cannot look at the complaint – we will consider the evidence and decide whether we need to investigate further whether the consumer was appropriately classified.
We may decide that the classification was not an accurate description of the consumer. In these circumstances we can then investigate the complaint.
We sometimes see complaints where the consumer’s initial dissatisfaction results from their portfolio falling in value. The value of a portfolio that contains assets with prices that fluctuate daily (such as shares) will rise and fall.
The fact that a share, or group of shares, may perform poorly does not necessarily mean that a broker or portfolio manager has been negligent when choosing that investment.
Poor investment performance in itself is not grounds for a complaint that we will uphold. However, while poor performance often triggers the complaint, further investigation may reveal issues about suitability.
As part of our work resolving disputes about individual transactions in stocks and shares, consumers complain to us that their broker:
Brokers offer different types of service depending on the type of agreement that has been entered into. In the case of individual transactions in stocks and shares, brokers offer:
Where we receive a complaint about advice given by a broker, we will consider the overall suitability of that advice in relation to the consumer’s investment objectives and attitude to risk.
The section of our website on assessing the suitability of investments gives more information on this issue.
The regulator, the Financial Services Authority (FSA), views a number of investments and activities – including penny shares – as "risky" products. Penny shares are shares, usually priced in pennies. They are often difficult to sell and the share price may be very volatile. There is also usually a wide difference between buying and selling prices which can mean that potential profits on short-term trading are immediately lost.
The FSA says the risks of penny shares should be made clear to a potential consumer. This will normally require the risks to be explained to the consumer before each transaction is completed.
The FSA says it is not sufficient simply to refer to a risk warning that appears in some other document. Penny shares are suitable only for those consumers who are prepared to take a high level of risk with their money.
We sometimes see complaints from consumers who say they did not understand the risks of penny shares – and that they were pressurised into buying stock which later lost value.
In these cases, if a phone recording of the sale is available we will listen to this to decide whether the appropriate risk warnings were given – and whether the consumer understood the risks involved.
If no phone recording is available, we will consider other evidence about what was said. Even if the appropriate warnings and acknowledgements occurred, we will still consider whether the shares were suitable for that particular consumer.
We see complaints about the following issues in relation to setting up and running a share-dealing account.
We will make a decision about what was a reasonable time for the broker to set up a dealing account in the case in question. If we decide that the broker took too long to set up the account, we will look at the circumstances of the case to decide whether the delay caused any actual financial loss to the consumer – and/or whether the consumer was inconvenienced. If it is asserted that a particular fund or share would have been bought we would generally need to see some evidence to support this.
We will consider the broker’s reasons for why the systems were not working – and what commitments the broker’s terms and conditions made about providing trading systems. If we decide the broker was at fault, we will look at how the consumer was affected. It is generally the case that brokers do not and cannot guarantee that clients will always be able to trade online, for example. In such circumstances we would usually consider it reasonable to expect alternatives such as phone dealing to be attempted.
Where shares are held in certificate (paper) form, there is always the risk they will be lost or destroyed. If a certificate is lost for whatever reason, a registrar will not issue a duplicate until the owner of the share signs a letter of indemnity. This letter indemnifies the registrar from any costs, if the claim for a lost certificate is fraudulent. The owner of the share will be expected to pay for the cost of the indemnity.
Where the loss was caused by the broker – for example, because the broker sent the certificate to the wrong address despite having been notified of a change of address – we may decide that the broker was responsible for the loss, and so should pay for the indemnity.
A nominee company is set up simply to hold shares on behalf of consumers who do not want to hold them themselves. The shares are registered on the share register in the name of the nominee company, not the name of the consumer.
Because the consumer still has effective (but not legal) ownership of the shares, the nominee company normally makes sure that the consumer is kept informed about anything that could affect their interests as a shareholder. This includes takeovers, share issues or general meetings.
Complaints can arise when this does not happen. In these cases we will examine the terms and conditions of the nominee company’s involvement and what the consumer was told.
The complaints we see about brokers failing to carry out transactions, or carrying out transactions incorrectly, most commonly centre on two issues – the type of order involved and "selling short".
The most common orders placed with brokers are:
In the cases we see involving "at best" orders, consumers sometimes complain that they did not get the best price available on that particular day.
But "at best" does not mean the best price quoted on that particular day. It means the best price quoted at the time the broker went to the market – which should be within a reasonable time of the consumer’s order being placed.
So in these cases, we will consider the broker’s best-execution policy – and examine evidence as to whether the broker got the best price quoted at the time it went to market.
We also see complaints that arise from misunderstandings about "limit orders". There is no specific regulatory requirement about how consumers should be informed about "limit orders". But we sometimes decide that the broker should have been clearer about the terms of the limit set, either on the phone or in writing.
With "limit orders" we also see cases where the consumer complains that the market price went through the price set in the order – but the broker failed to carry out the sale or purchase transaction.
In these cases, we look at market data to see whether the limit price was breached. We will also consider any other factors that might have affected the "limit order" being carried out.
We see complaints where the consumer inadvertently sold shares they did not own – and so the broker bought back the shares in the market. These complaints usually centre on two issues: that the broker should not have allowed the consumer to sell shares they did not own; and that the broker should not have bought back shares without the consumer’s permission.
Any decision we make – on who was to blame for the consumer selling shares they did not own – will hinge on who should have known the true position about the identity and number of shares held. Brokers usually have no responsibility to advise "execution only" consumers about any change in their holding.
However, we sometimes see complaints from "execution only" consumers whose shares are held in the broker’s nominee name – and where the number of shares held is stated incorrectly (for example, after a share consolidation has taken place). The outcome in these circumstances will depend on what questions were asked – and on what information had been provided about the change in the number of shares.
contact our technical advice desk on 020 7964 1400
This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.