Not upheld: failure to exercise due diligence; alleged mis-selling of complex product to retail customers complaint against Hargreaves Lansdown Asset Management Limited

Decision detail

Summary

Dr P invested £61,011.19 in a synthetic Russian equity ETF within his SIPP in March 2017 through HL's platform. The fund was liquidated in 2023 following political unrest in Russia, leaving Dr P with only £25.37. Dr P complained that HL failed to exercise due diligence by making this complex fund available to retail customers, claiming it was unsuitable and too risky. HL and the FOS investigator rejected the complaint, finding the fund was properly classified as high-risk, suitable for retail investors, and adequately disclosed through the KIID. The ombudsman upheld this decision, determining that while the fund had a sophisticated synthetic structure, it was not 'complex' in regulatory terms, was mainstream and regulated, and the losses resulted from exceptional market events outside HL's control.

The Ombudsman's reasoning

The ombudsman determined that while the fund had a sophisticated synthetic structure using swaps and derivatives, it was not 'complex' in the regulatory sense because it was tradable on mainstream exchanges, had existed for many years with normal volatility patterns, and was explicitly approved for retail investors in the Prospectus. The KIID provided clear disclosure of all key risks including political and economic risks specific to Russia. As Dr P was an execution-only client, HL was not required to assess suitability but only to classify correctly and provide clear information, which it did. The ultimate loss was caused by an exceptional market event (war in Ukraine and fund liquidation) outside HL's control and not foreseeable at the time of investment in 2017.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website