Morality? What Morality?

How would you have coached the people involved?

A true tale of a global financial services organisation that offers wealth management facilities to private investors. In so doing they charge fees to deal with the paperwork and accounting associated with running a portfolio.

Imagine then the scenario where, following a withdrawal instruction, they pay out the cash but singularly fail to account for this in the online valuation and paperwork. Some three months later the investor decides to review her portfolio and believes that there is some £18,000 of cash lying around she hadn’t noticed. She then invests this in a series of companies over the ensuing 4 months. Still no warning from the managers that something is awry.

A full 11 months after the initial withdrawal the wealth managers wake up to their error and ask for their money back. This leaves our investor in a quandary. Does she disinvest the “new” shares or some of her other holdings? She opts for the latter, only to suffer a major setback a few weeks later when the price of one of the new holdings collapses due to unforeseeable circumstances. Overall the exercise has left our customer some £17,000 down on where she would have been if nothing had happened from Day One.

You might agree with the wealth managers who blame her for the loss and refuse to compensate. But hang on a moment. They have put our investor in the invidious position of having to call heads or tails between two options. Moreover they are effectively saying that if anything goes wrong with that call then they are not to blame.

How can that be? The Financial Ombudsman service is supposed to operate on the principle that when an error is made, the customer should be put back in the position they were in before it happened. In our view that means the wealth managers should reconstruct the portfolio as it would have been if they had accounted properly for the first withdrawal – thereby disabling the subsequent purchases and switching. They should also compensate for the substantial lost dividends on the holdings that were encashed. Instead they choose to hide behind a legal opinion that absolves them from any responsibility whatsoever.

Who is morally bankrupt here?

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