Natwest Bank has been ordered to pay compensation to a couple after they were recommended a bond that was unsuitable for them.
The Financial Ombudsman ordered Natwest to pay interest and compensation to Mrs and Mr R, after they complained through a claims management company that the Guaranteed Capital Bond the bank's adviser recommended to them was not suitable.
The couple had minimal investment experience, and claimed they had no understanding of the stock market or the complex nature of the bond.
Ombudsman James Harris said the couple met with a Natwest adviser in 2007, and wanted to invest £10,000.
They were looking for better returns than available on a deposit account, and also wanted a guarantee that they would get the money back.
The Guaranteed Capital bond, which has a three-and-a-half year term over which it could return a maximum of 123 per cent, was recommended to them.
The return was dependent on the performance of the FTSE 100.
However, in 2010, the bond returned only the capital, and Mr and Mrs R complained.
An adjudicator said the complaint should succeed, because they weren’t made aware of how much of a risk they were taking, and the letter issued to them didn’t explain fully how the bond worked.
Natwest argued the couple understood the risk of return but ombudsman Mr Harris questioned that.
He said: "Mr and Mrs R were more likely than not happy to take some risk with this relatively small portion of their money. And I also think it’s likely they were aware that a potential outcome of the investment could be that they might only get their £10,000 back, with no return.
“But I am not persuaded that sufficient was done to ensure they fully understood the nature of the risk the bond involved, the likelihood of a return being achieved or the alternatives available."
He added that there is no indication that fixed rate bonds, or anything else, was considered as an alternative for the couple.
Natwest was told to pay Mr and Mrs R compensation based upon a comparison of what their £10,000 actually earned with what it would have earned if they had instead invested in a two-year fixed rate bond paying a rate of 5.2 per cent, followed by a return based on the average rate for fixed rate bonds with 12 to 17 months maturity as published by the Bank of England.
A spokesman for Natwest said: “The case relates to a product taken more than 10 years ago. However, we accept the findings of the Ombudsman and have compensated our customer inline with their recommendations.”
rosie.murray-west@ft.com
